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8 marksTheory of Supply

CAPE Economics Unit 1 · 2017 · Paper 2 · Question 1(c)

A large domestic retailer plans over a four-year period to expand physical capacity to meet high regional demand. The CEO claims expanding will yield economies of scale.

Evaluate the CEO's claim that expanding physical capacity to meet high demand will allow the firm to benefit from economies of scale.

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Other parts of this question

  1. 1(a)(i)Define the term 'price elasticity of supply'.[2 marks]
  2. 1(a)(ii)Define the term 'income elasticity of demand'.[2 marks]
  3. 1(b)(i)Explain, with the aid of a PPF diagram, the concept 'opportunity cost'.[5 marks]
  4. 1(b)(ii)Use the information in Table 1 to calculate the price elasticity of supply when the price changes from 9 to 10. Interpret your results.[8 marks]

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