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S5 Economics paper 1: revenue, cost and profit
S5 Economics paper 1: revenue, cost and profit
Ten items start with total revenue, total cost and average cost, then move on to marginal revenue, marginal cost and monopoly pricing.
Direct answers Items 01 to 03 cover total revenue, profit and average cost, 04 to 06 marginal revenue and the equality of marginal revenue and marginal cost, 07 to 09 monopoly pricing, the competitive comparison and the Lerner index, and 10 the belief that the highest price gives the highest profit.
01 Paper details (check answers afterwards)
| Item | Detail |
|---|---|
| Questions | 10 |
| Suggested time | 25 |
| Difficulty mix | Foundation 3 · Intermediate 3 · Challenge 3 · Error redo 1 |
| Chapter | Chapter: S5 Economics Market Structures and Monopoly |
| Level | S5 |
02 Questions (10 items)
- FoundationA monopoly charges 50 dollars and sells 200 units. Find total revenue.
- FoundationA firm has total revenue of 12,000 dollars and total cost of 9,000 dollars. Find profit.
- FoundationOutput is 400 units and total cost is 8,000 dollars. Find average cost.
- IntermediateDemand is P = 60 minus 2Q. Find the marginal revenue function and its value at Q = 5.
- IntermediateWith the demand above and MC = 2Q, find the profit-maximising output and price.
- IntermediateAt Q = 10 total revenue is 400 dollars and TC = Q squared plus 100. Find profit.
- ChallengeDemand is P = 100 minus Q and TC is 20Q plus 50. Find the monopoly output, price and profit.
- ChallengeIf the same market were served competitively with marginal cost still 20 dollars, find competitive output and compare it with the monopoly output.
- ChallengeThe monopoly price is 60 dollars and marginal cost is 20 dollars. Find the Lerner index.
- Error redoA common slip: a student believes a monopoly maximises profit by charging the highest price and selling the least. What is wrong?
03 Answers and one-line notes
| # | Answer | One-line note |
|---|---|---|
| 1 | Total revenue is 10,000 dollars (50 times 200). | Total revenue multiplies price by quantity. |
| 2 | Profit is 3,000 dollars (12,000 minus 9,000). | Profit is total revenue less total cost. |
| 3 | Average cost is 20 dollars (8,000 divided by 400). | Average cost divides total cost by output. |
| 4 | MR is 60 minus 4Q, so MR is 40 dollars at Q = 5. | For linear demand the marginal revenue slope is twice as steep as the price slope. |
| 5 | Q is 10 and P is 40 dollars, because 60 minus 4Q equals 2Q gives Q = 10. | Profit is maximised where marginal revenue equals marginal cost. |
| 6 | Profit is 200 dollars (400 minus 200). | Work out total cost first, then subtract it from total revenue. |
| 7 | Q is 40, P is 60 dollars and profit is 1,550 dollars (2,400 minus 850). | Set 100 minus 2Q equal to 20, then substitute back into demand for the price. |
| 8 | Competitive output is 80 units (100 minus Q equals 20), which is 40 units more than under monopoly. | Perfect competition produces where price equals marginal cost. |
| 9 | The Lerner index is 0.667, or 66.7 per cent. | A larger index means stronger market power. |
| 10 | Output should be set where marginal revenue equals marginal cost, and price then follows from demand, so a higher price is not automatically better. | An excessive price cuts sales and can reduce total revenue. |
04 What to do after marking
- After marking, redo only the wrong items and write down which step went wrong (formula, unit, or misread number).
- Repeat the same item two days later; move to the next paper only when both attempts are correct.
- Parents only need the answer and note columns; there is no need to explain every item.
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