a) Variable costs: Remuneration of flight attendants, Meals and drinks onboard, Fuel.

Fixed costs: promotions and Advertising, Remuneration of administrative staff and Airport charges.

Subtract one mark for each pair of errors.

b) Application and Definitions of differences between indirect costs and direct costs. A direct cost is purposely related to a particular flight. For a flight on a basic airline carrier, the catering costs are considered to be direct costs. Indirect costs are not directly linked with a particular flight, e.g. insurance costs and advertising.

a) Complete the table for the expenses of producing wooden toy trains:

b) 

i. Graph

ii. Graph

c) AC falls from $25 per unit to $9.0 and then rises again to $9.7. This is representative of the pattern of diseconomies and economies of scale experienced by firms as they produce increasing levels of output.

d) Reasons might include a lack of working capital to exploit economies of insufficient or scale demand to justify producing at the optimal level of output. Full explanation needed for maximum marks.