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Effect of Increased Output on Firm's Profits

Question

Discuss whether an increase in output will increase the profits that firms receive.

Category:

Firm Behavior and Strategies

Frequently asked question

Preview Answer

I. 🍃Introduction
A. Definition of output
B. Importance of output in economics
C. Purpose of the essay

II. Reasons why higher output may increase profits
A. Higher demand
➡️1. Explanation of how higher demand leads to higher output
➡️2. Increase in revenue
➡️3. Widening of the gap between revenue and cost
B. Elastic demand
➡️1. Explanation of how elastic demand affects price and demand
➡️2. Increase in revenue due to lower prices
➡️3. Example of a firm that benefited from elastic demand
C. Economies of scale
➡️1. Explanation of economies of scale
➡️2. How higher output enables firms to take advantage of economies of scale
➡️3. Lowering of average costs
➡️4. Example of a firm that benefited from economies of scale

III. Reasons why higher output may not increase profits
A. Inelastic demand
➡️1. Explanation of inelastic demand
➡️2. How inelastic demand affects price and demand
➡️3. Decrease in revenue due to lower prices
B. Diseconomies of scale
➡️1. Explanation of diseconomies of scale
➡️2. How higher output may lead to diseconomies of scale
➡️3. Increase in average costs
➡️4. Example of a firm that experienced diseconomies of scale
C. Falling demand
➡️1. Explanation of falling demand
➡️2. How falling demand affects revenue
➡️3. Possibility of making a loss
➡️4. Example of a firm that experienced falling demand

IV. 👉Conclusion
A. Summary of the reasons why higher output may or may not increase profits
B. Importance of considering various factors before increasing output
C. Final thoughts on the topic.

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