Microeconomic Decision Makers · 4 question types
Past paper frequency (2018 to 2024)
This topic accounts for approximately 10% of your exam marks.
Fixed vs variable costs, profit calculations, and average cost appear regularly across both Section A and Section B questions.
Cost is only half the story. The other half is what the firm gets paid.
Total revenue (TR) = the selling price multiplied by the number of units sold. In short form,
TR = P × Q.Average revenue (AR) =
TR ÷ Q. For a firm selling at a single price, this is the same as the price.
Example — a small bakery sells at a different number of price/quantity points.
| Price (£) | Quantity (Q) | TR = P × Q (£) | AR = TR ÷ Q (£) |
|---|---|---|---|
| 5 | 100 | 500 | 5 |
| 4 | 150 | 600 | 4 |
| 3 | 200 | 600 | 3 |
| 2 | 250 | 500 | 2 |
Notice how TR rises, peaks, and falls again as the price comes down. The peak (here at £4 × 150 = £600 or £3 × 200 = £600) is where elasticity of demand passes through unit elastic (topic 7).
Average revenue is most useful for firms that sell a range of products (a supermarket) or the same product at different prices (a train operator with peak vs off-peak fares). It gives a single per-unit revenue figure across the whole sales mix.