Describe how a firm is said to operate in order to maximise profits. Consider whether it will cease to operate if total revenue fails to cover total cost.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2017). The mark or mark type is shown in brackets.

1. [9-12] L4 for a sound explanation with good analysis and a clear understanding of the principles involved for both parts of the question
2. [7-8] L3 for a competent comment on profit maximisation with concentration on normal/abnormal profit, little comment about short/long run,
3. [5-6] L2 for a less developed answer, concentrating on maximum profit point, and poor understanding of significance of AVC
4. [1-4] L1 For an answer that has some basic correct facts but includes irrelevancies and errors of theory
5. [9-13] L4 for a discussion of at least 4 of the assumptions and comment on price matching with overall conclusion
6. [7-8] L3 for a discussion of 3 points with reasoned analysis and comment.
7. [5-6] L2 for a more general or imprecise answer mainly concentrating on the theory with little focus on the question.
8. [1-4] L1 For an answer that has some basic correct facts but includes irrelevancies and errors of theory