RI 2024 H2 Firms and Decisions - Supplementary Worksheet

© Raffles Institution 1 Economics Department RAFFLES INSTITUTION YEAR 5 H2 ECONOMICS 2024 FIRMS AND DECISIONS (PARTS 1 & 2) Question 1 a. Explain how firms maximise profits. b. Explain why firms can sometimes aim to revenue maximise. c. Explain what is meant by profit satisficing. Question 2 Imagine that you are the owner of an ice-cream shop like Baskin Robbins. a. Using an example in the context above, explain what fixed cost. b. Using an example, explain what variable cost is. SUPPLEMENTARY WORKSHEET

© Raffles Institution 2 Economics Department c. Which of the following is likely to be fixed costs or variable costs for a chocolate factory over the course of a month? Example Fixed or Variable costs Overtime pay Wear and tear on wrapping machines. Interest on a mortgage for the factory: the rate of interest rises over the course of the month. d. Distinguish between internal and external economies of scale. e. For each of the following examples, f. State if the economies of scale is internal or external g. Identify the type of internal/external economies of scale h. Identify how a firm’s LRAC would be affected Example State if internal / external EOS Identify the type / reason of EOS Changes to LRAC: Listed companies can finance their operations through public issue of shares. A wafer fab producer benefits from R&D findings by leading players in the industry. Firms employ specialists to improve the efficiency of different stages of production.

© Raffles Institution 3 Economics Department Diagram drawing practices i. With the aid of appropriate diagrams, illustrate how the profit maximising equilibrium of a PC firm and that of a monopolist is derived. Profit maximising equilibrium of PC firm Profit maximising equilibrium of Monopolist j. Complete the diagram below by drawing in the LRAC to illustrate the long run equilibrium of a monopolistically competitive firm making normal profits in the long run. Total Revenue = Total Cost = Profits = 0 Quantity O Price/Revenue/Cost LRMC DD=AR P MR Q

© Raffles Institution 4 Economics Department k. Complete the diagram below by drawing in the LRAC to illustrate the long run equilibrium of an oligopoly firm making supernormal profits in the long run. l. With respect to the diagram below, illustrate the LRAC and LRMC of a natural monopoly and determine the profit maximising equilibrium of the natural monopoly. Total Revenue = 0PAQ Total Cost = Profits = Quantity O Q DD=AR MR MC P A Price/Revenue/Cost Price/Revenue/Cost O Quantity ARmonopoly = market demand MR