A chocolate producer sells each bar for £2.00. Its fixed costs are £4,000 a week. It is considering sourcing cocoa under an arrangement that guarantees farmers a minimum price plus a premium. This would increase its variable cost per bar, and the producer expects weekly sales to change as shown.
| Current sourcing | Proposed sourcing | |
|---|---|---|
| Bars sold per week | 10,000 | 11,000 |
| Variable cost per bar | £1.20 | £1.35 |
Using the data, explain the trade-off the producer faces if it uses the proposed sourcing arrangement.
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.