Cambridge International as and a level Economics Ebook

particularly on busy routes where this aircraft could 
replace two smaller ones.
Read the feature below and then answer the questions that follow.
a
Using the information provided, explain the likely 
types of economies of scale that might be gained by:
■
Maersk 
Line
■
airlines using A380s.
b
How might these fi rms and their customers 
benefi t from economies of scale?
c 
What diseconomies might arise as container 
vessels and aircraft increase in size?
Maersk Line container vessel
A380 aircraft 
157
Chapter 7: The price system and the microeconomy 

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SELF-ASSESSMENT TASK 
7.6
A small family-run engineering company has a 
productive capacity of 9,000 units per year. Market 
research suggests that the market will take up all of 
this output at a price of $8 per unit. Th
e fi rm’s cost 
structure is as follows:
■ 
direct labour costs $1.50 per unit
■ 
raw materials costs $0.50 per unit
■ 
other variable costs $1.00 per unit, including 
normal profi t
■ 
the total fi xed costs are $27,000 a year.
1
Calculate:
a 
AFC
b 
AVC
c 
ATC
d 
AR.
2
If the factory produced its capacity output, what 
would the fi rm’s abnormal profi t be?
3
Suppose that consumer tastes change away from 
the product and the fi rm has to reduce the price 
to $6 in order to get rid of unsold stock. What 
situation is the fi rm now in?
Equilibrium and eff iciency: 
The two examples in Self-
assessment task 7.5 provide clear evidence as to how 
these transport markets have become more eff icient over 
time. As a consequence, the price of air travel and the 
cost of moving containers from Asia to Europe is not only 
competitive but is likely to be falling in real terms.
KEY CONCEPT LINK