AQA A-level Economics (new spec) 2-03 Production and Cost Theory

[UPDATED to include questions from more recent papers and answers to multiple-choice questions]

This is a Powerpoint (and accompanying Notes/Key Terms sheet) that I created for my own teaching of the new (linear) AQA A-level Economics specification (7135). As I was also using the AQA-approved textbook (Powell & Powell, 2016) the two follow a similar route through the material.

Topics covered in this Powerpoint:
4.1.4.3 The law of diminishing returns and returns to scale
• The difference between the short run and the long run.
• The difference between marginal, average and total returns.
• The law of diminishing returns.
• Returns to scale.
• The difference between increasing, constant and decreasing returns to scale.
• Students should appreciate that both the law of diminishing returns and returns to scale explain relationships between inputs and output.
• They should also understand that these relationships have implications for costs of production.
4.1.4.4 Costs of production
• The difference between fixed and variable costs.
• The difference between marginal, average and total costs.
• The difference between short-run and long-run costs.
• The reasons for the shape of the marginal, average and total cost curves.
• How factor prices and productivity affect firms’ costs of production and their choice of factor inputs.
• Students should be able to calculate different costs from given data.
• They should also be able to draw and interpret cost curves
4.1.4.5 Economies and diseconomies of scale
• The difference between internal and external economies of scale.
• Reasons for diseconomies of scale.
• The relationship between returns to scale and economies or diseconomies of scale.
• The relationship between economies of scale, diseconomies of scale and the shape of the long-run average cost curve.
• The L-shaped long-run average cost curve.
• The concept of the minimum efficient scale of production.
• Students should be able to categorise and give examples of both internal and external economies of scale.
• Students should understand the significance of the minimum efficient scale for the structure of an industry and barriers to entry.