Task Sheet 17

REVIEW QUESTIONS

Pepper Publishing still produces magazines, despite your attempts to bankrupt it. It is producing a new
title for children called ‘Digger the Dog’. It has fixed costs of £10,000 per issue. The variable costs of
producing ‘Digger the Dog’ are £0.50 per copy. The price that the magazine sells for is £3.

1. Explain what is meant by a fixed cost. Use the words cost and output in your answer. (1 mark)

2. List two costs that would be fixed for Pepper Publishing when it produces ‘Digger the Dog. (2 marks)

3. Explain what is meant by a variable cost. Use the words cost and output in your answer (1 mark)

4. List two costs that would be variable for Pepper Publishing in producing Digger the Dog. (2 marks)

5. Work out the total cost of production if Pepper produces:

a) 1,000 copies of ‘Digger the Dog’ (1 mark)

a
b b) 5,000 copies (1 mark)

6. What is the average cost (total cost divided by output) of producing the magazine if Pepper produced:
a) 1,000 copies (1 mark)

b) 5,000 copies (1 mark)

7. Explain what is meant by sales revenue (2 marks)

8. What would be Pepper’s total sales revenue if they sold

a) 1,000 copies (1 mark)

b) 5,000 copies (1 mark)

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9. Pepper can produce a maximum of 10,000 copies of Digger. Use graph paper to draw a break-even
graph that has costs and revenues on the y-axis going up to £30,000 and output on the x-axis going
up to 10,000. Make sure that the axes are labelled. (3 marks)
10. Plot fixed costs, total cost and total sales revenue on the graph. (3 marks)
11. Identify the break-even output of production. (1 mark)
12. How much profit will Pepper make if it sells all 10,000 magazines? (1 mark)

13. Pepper decides to change the price for the next issue. Its costs are the same, and it produces 10,000
copies. If it wants a profit of £1.70 per issue, what price should it charge? (2 marks)

14. What name is given to this type of pricing policy? (1 mark)

15. Explain how Pepper could use a:

a) Penetration Price (2 marks)

b) Market Skimming Price (2 marks)

c) Market Orientated Price (2 marks)

16. Explain how Pepper could use direct and indirect advertising in promoting their product. (2 marks)

17. Explain two ways in which Pepper could distribute their magazine. (2 marks)

18. Identify 4 characteristics of Digger the Dog’s target market. (2 marks)

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