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Costs and Revenues - Lesson Plan: 2 x 1 hour lessons

A series of 'off the shelf' lesson plans and resources for use in the classroom. These lessons deal with Costs and Revenues and are relevant to the following specifications:

  • AQA: Module 1, 10.1, 10.4. Module 5, 14.1
  • Edexcel: Unit 2, Unit 4
  • OCR: Unit 2881 - 5.1.3

Aim:

The aim of these lessons is to introduce students to the different concepts associated with the theory of the firm and, in particular, to look at the application of the concepts associated with costs and revenues to a firm's decision making.

The PowerPoint Presentation covers a range of information related to the theory of the firm - not all of the information in the Presentation will be relevant for students following AS Economics (the slide on profit maximisation, for example) so the Presentation can be used selectively depending on the stage of development of the students' learning.

The key sections relating to the Activity will be on aspects of costs and revenues. Students are asked to think about these concepts in relation to a variety of scenarios. In scenario one, for example, the student is asked to think about the relationship between the fixed cost of running a scheduled airline - a very high proportion of the total cost of the journey for the airline company - and the cost of accommodating one extra passenger. The latter is virtually zero, so in theory, the airline could fill the seats with a variety of pricing plans designed to attract passengers. This helps to explain why the average flight has so many different pricing structures - one study some years ago identified 166 different prices that could be paid by passengers on flights from London to New York! This may also explain the popularity of the offer of cheap airline tickets in competitions and in promotional activities by other firms to help exploit this spare capacity.

The first scenario can be developed by relating the issue to the pricing policies of the low cost/no frills airlines. A quick glance at the Ryanair Web site suggests passengers could travel to some foreign destinations for free. Students could be asked to think about the economic sense behind this strategy.

The scenarios could be treated as individual written units carried out by the students and then discussed, or as small group discussion activities with feedback, followed by whole class discussion. The Activity could also be a straightforward written exercise completed as part of a homework task or used as a purely discussion based session.

The length of time devoted to the Activity (1 or 2 lessons) could therefore depend on the type of approach adopted. The suggested lesson structure therefore is left open in terms of timing to accommodate the individual preference of the educator.

Learning Objectives:

At the end of the activity students should be able to demonstrate the following:

  • An understanding of the key concepts of total, variable, fixed, average and marginal costs
  • An understanding of the key concepts of total, average and marginal revenue and the factors influencing total revenue
  • An ability to apply these concepts to different business scenarios and to understand the factors influencing a firm's decision-making process in relation to the concepts of costs and revenues

Resources:

Lesson Structure:

  • Introduce the lesson using the PowerPoint Presentation. As suggested above, this may involve using selective elements of the Presentation or could cover the whole section as preferred. Throughout the Presentation, ensure that students are given questions to assess their understanding of the concepts.
  • Outline the task in the Activity to the students.
  • Set the task using the preferred method.
  • The follow up and the use of the second lesson will depend on the method adopted. Discussion may be carried on into the second lesson.