A firm sells 200 units at 5 each. State its total revenue. [2 marks]

OCR OCR J205/01 2020-style practice: A firm sells 500 units at 8 each. Its total costs are 3,000. Calculate the firm's total revenue and its profit.

A Calculate question. **Total revenue** is price times quantity: TR = 8 × 500 = 4,000. **Profit** is total revenue minus total cost: profit = 4,000 - 3,000 = 1,000. Markers reward the correct TR calculation, the correct profit calculation, and clear use of the formulae. Stating the firm makes a profit of 1,000 earns full marks.

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How do firms measure their costs, revenue and profit, and why do these matter for supply?

Calculating total cost, average cost, total revenue, average revenue, and profit or loss, the importance of these for producers, and economies of scale.

An OCR J205 answer on calculating total and average cost, total and average revenue, and profit or loss, why these matter for producers and supply, and economies of scale.

Generated by Claude Opus 4.810 min answerUpdated 2026-06-02

Reviewed by: AI editorial process; not yet individually human-reviewed

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What this dot point is asking
Costs
Revenue
Profit and loss
Why costs, revenue and profit matter for supply
Economies of scale
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What this dot point is asking

OCR wants you to calculate total cost, average cost, total revenue, average revenue and profit or loss, explain why these matter for producers and for supply, and explain economies of scale. These are core quantitative skills in J205/01.

Costs

For example, if fixed costs are $\pounds 2{,}000$ and variable costs are $\pounds 3{,}000$ to make 1,000 units, then $TC = \pounds 5{,}000$ and $AC = \frac{5000}{1000} = \pounds 5$ per unit.

Revenue

If a firm sells 1,000 units at $\pounds 8$ each, $TR = 8 \times 1000 = \pounds 8{,}000$ and $AR = \pounds 8$ (the price).

Profit and loss

Using the figures above, with $TR = \pounds 8{,}000$ and $TC = \pounds 5{,}000$ , profit is $8000 - 5000 = \pounds 3{,}000$ .

Why costs, revenue and profit matter for supply

Profit drives supply. If a good becomes more profitable (higher price or lower costs), firms supply more of it; if it becomes unprofitable, firms supply less or leave the market. This is the link back to the supply curve: a rise in costs shifts supply left because each unit is now less profitable, while a fall in costs shifts supply right. Profit therefore signals where resources should go in the economy.

Economies of scale

Sources of economies of scale include:

Bulk buying: large firms buy materials in big quantities at lower prices per unit.
Spreading fixed costs: rent and machinery costs are shared over more units, so average cost falls.
Specialisation: large firms can employ specialists and use the division of labour fully.
Technical: large machines and processes are often cheaper per unit of output.

Showing how scale lowers average cost

Step 1: small firm

A small bakery has fixed costs of $\pounds 1{,}000$ and variable costs of $\pounds 1$ per loaf. Making 1,000 loaves, $TC = 1000 + (1 \times 1000) = \pounds 2{,}000$ , so $AC = \frac{2000}{1000} = \pounds 2$ per loaf.

Step 2: large firm

A large bakery has fixed costs of $\pounds 5{,}000$ but, buying flour in bulk, variable costs of only $\pounds 0.50$ per loaf. Making 50,000 loaves, $TC = 5000 + (0.50 \times 50000) = \pounds 30{,}000$ , so $AC = \frac{30000}{50000} = \pounds 0.60$ per loaf.

Step 3: compare

The large bakery's average cost ( $\pounds 0.60$ ) is far below the small bakery's ( $\pounds 2$ ), because fixed costs are spread over more units and bulk buying cut variable costs.

Step 4: interpret

With a much lower average cost, the large firm can charge a lower price and still profit, showing how economies of scale give big firms an advantage.

Try this

Q1. A firm sells 200 units at $\pounds 5$ each. State its total revenue. [2 marks]

Cue. $TR = 5 \times 200 = \pounds 1{,}000$ .

Q2. Explain one source of economies of scale. [3 marks]

Cue. Bulk buying: large firms buy inputs in big quantities at a lower price per unit, lowering average cost.

Exam-style practice questions

Practice questions written in the style of OCR exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.

OCR J205/01 20204 marksA firm sells 500 units at

\pounds 8

each. Its total costs are

\pounds 3{,}000

. Calculate the firm's total revenue and its profit.

Show worked answer →

A Calculate question. Total revenue is price times quantity: $TR = \pounds 8 \times 500 = \pounds 4{,}000$ .

Profit is total revenue minus total cost: $\text{profit} = \pounds 4{,}000 - \pounds 3{,}000 = \pounds 1{,}000$ .

Markers reward the correct $TR$ calculation, the correct profit calculation, and clear use of the formulae. Stating the firm makes a profit of $\pounds 1{,}000$ earns full marks.

OCR J205/01 20226 marksExplain how economies of scale could allow a large firm to charge lower prices than a small firm.

Show worked answer →

A 6 mark question linking scale to average cost and price.

As a firm grows, it can spread its fixed costs over more units and buy materials in bulk at lower prices, so its average cost (cost per unit) falls. These are economies of scale.

A lower average cost means the large firm can charge a lower price and still make a profit, while a small firm with higher average costs cannot match it without making a loss. Markers reward the link from size to lower average cost (with examples such as bulk buying), and from lower average cost to lower price.

Related dot points

Sources & how we know this

OCR GCSE (9-1) Economics J205 specification — OCR (2017)