ECONOMICS

.
Fizzy Fizz is a manufacturer of soft drinks. The firm has experienced economies of scale
and improved efficiency in the
long run
. The UK Government has, however, increased
indirect taxation that has led to an increase in the
rate of inflation
in the economy.
The following table shows the firm’s short run costs.
Fizzy Fizz output per day
(barrels)
Total cost
(£)
Average cost
(£)
Marginal cost
(£)
0
100
–
–
1
200
200
100
2
280
140
80
3
330
A
50
4
360
90
30
5
450
90
90
6
600
100
150
7
770
110
B
(
a
)
Explain what is meant by the following terms:
(i)
“long run”;
(ii)
“rate of inflation”.
(
b
)
(i)
Using the table, identify the amount of fixed costs for Fizzy Fizz.
(ii)
Give
one
example of a variable cost for Fizzy Fizz.
(
c
)
Using the table calculate:
(i)
the average cost at
A
;
(ii)
the marginal cost at
B
.
(
d
)
(i)
Using a demand and supply diagram, explain the effect on the market for
soft drinks if the UK government imposes an indirect tax.
(ii)
Other
than an increase in indirect taxation, describe another cause of
inflation.

ITEM A (continued)
(
e
)
(i)
Suggest and explain
2
economies of scale Fizzy Fizz might achieve as it
expands its scale of production in the long run.
(ii)
Identify
2
benefits to Fizzy Fizz of improving its efficiency in the long

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