Syllabus: Pearson - GCSE Economics
Module: 1.2 Business Economics
Lesson: Pearson - 1.2.3 Business Costs Revenues and Profit

Introduction

This lesson falls under the Pearson Edexcel International GCSE in Economics, Paper 1: Microeconomics and Business Economics. Section 1.2.3 focuses on business costs, revenues, and profit—fundamentals that underpin every business decision from pricing to growth strategy.

Understanding these concepts is essential for helping students grasp how businesses operate, make financial decisions, and ultimately survive in competitive markets. It’s also a stepping stone for later topics like market structures and government intervention, giving students a toolkit to analyse both success and failure in business.

Key Concepts

According to the Pearson syllabus, students need to understand:

• Costs:

  • Fixed costs: Do not change with output (e.g. rent, salaries).

  • Variable costs: Change with output (e.g. raw materials, wages based on hours).

  • Total cost = Fixed cost + Variable cost

  • Average cost = Total cost ÷ Output

• Revenue:

  • Total revenue = Price × Quantity sold

  • Average revenue = Total revenue ÷ Output

  • For most businesses, average revenue equals price

• Profit:

  • Profit = Total revenue – Total cost

  • Students should be able to interpret and calculate profit from provided data.

  • Understanding the importance of profit as a business objective and source of investment.

These are assessed through numerical calculations, interpretations of business scenarios, and short written responses.

Real-World Relevance

Costs, revenues, and profits are not abstract. Think of a local café: rising milk prices increase variable costs, while fixed costs like rent stay constant. If they increase their coffee prices but lose customers, their total revenue could fall. This is the real-world dilemma businesses face daily.

You can also point to recent headlines—like a major retailer closing stores despite high revenue, due to unsustainable costs—to illustrate that profit isn’t guaranteed just because sales are strong.

Another useful reference is the 2024 energy price spike. Many UK manufacturers saw their profits fall or disappear, not because demand dropped, but because energy (a variable cost) soared.

How It’s Assessed

This topic is part of Paper 1 (1 hour 30 minutes), which features:

• Four compulsory questions (20 marks each)

• Mix of:

  • Multiple-choice

  • Short-answer

  • Data response

  • Extended written questions

Assessment often includes:

• Calculations (e.g. profit, average cost)

• Diagrams

• Interpretation of tables or graphs

• Explaining the effect of cost or revenue changes on profit

Common command words:

• Calculate: Show working clearly

• Explain: Define, then apply to context

• Analyse: Break down effects (e.g. how rising variable costs affect profit)

• Evaluate: Weigh up a business’s pricing strategy or decision in light of its cost structure

Enterprise Skills Integration

This topic naturally lends itself to decision-making and problem-solving:

• Numeracy & Data Analysis: Working out profitability using real or simulated data

• Decision-Making: Choosing between pricing options based on cost and revenue implications

• Risk Awareness: Understanding how tight profit margins affect resilience

• Creativity: Exploring ways a business could increase revenue or reduce costs

You could simulate a classroom activity where students run a “business” with changing variables—supplier price increases, customer demand shifts—and have to adapt to protect their profit margins.

Careers Links

The skills taught here map directly to:

• Accountancy and Finance (e.g. cost accounting, revenue forecasting)

• Entrepreneurship (managing profit and loss)

• Retail and Hospitality Management (pricing and cost control)

• Economics or Business Consultancy (advising on efficiency and strategy)

This links well with Gatsby Benchmark 4 (Linking curriculum learning to careers) and Benchmark 5 (Encounters with employers), especially if you can connect with a local business willing to share how they manage profit in practice.

Teaching Notes

What works well:

• Use real-life case studies (e.g. supermarkets, coffee shops, subscription services)

• Encourage “what if” thinking: what happens to profit if costs double? If prices drop by 10%?

• Connect to students’ own experiences (e.g. school tuck shops, side hustles)

Common pitfalls:

• Confusing total and average values

• Forgetting to subtract total costs from total revenue for profit

• Failing to distinguish between fixed and variable costs

Extension ideas:

• Compare different business models: subscription vs retail

• Introduce break-even analysis as an advanced application

• Link to environmental sustainability—how might reducing carbon output affect costs?

Resource tip: A basic spreadsheet task can bring this to life—students adjust cost and price variables and instantly see the impact on profit.