A manufacturer produces notebooks for schools. It is considering ordering paper in much larger quantities and expanding from one production site to three.
Table 1 shows its estimated monthly output and average cost.
| Monthly output (notebooks) | Average cost per notebook |
|---|---|
| 50,000 | £1.20 |
| 120,000 | £0.88 |
| 200,000 | £1.04 |
State the monthly output at which average cost is lowest.
Explain one reason why ordering paper in much larger quantities could help to reduce the manufacturer's average cost.
Explain one reason why coordinating three production sites could contribute to the manufacturer's average cost rising at an output of 200,000 notebooks per month.
138 exam-style questions on AQA GCSE Economics 1.4 Production, costs, revenue and profit, covering 1.4.1a Business objectives, 1.4.1b Types of costs and revenue, 1.4.1c Calculating profit, 1.4.1d Profit as an incentive to produce, 1.4.1e Moral and ethical considerations, 1.4.2a Production versus productivity, 1.4.2b Factors and benefits of productivity, 1.4.3a Economies of scale and business behaviour, 1.4.3b Types of economy of scale, and 1.4.3c Diseconomies of scale. Each one has a worked solution and a mark scheme showing where the marks go.