Unit 20 Paper 1.1

 What is a reason why firms making similar products sometimes locate near each other?

• competition is decreased

• There are external economies of scale

• There are internal economies of scale

• transport costs may be eliminated

Answer explanation

The correct answer is there are external economies of scale. Firms that are located near each other can benefit from shared infrastructure, labor pools, and supplier networks, leading to reduced costs and increased efficiency.

This happens because firms can benefit from shared resources and infrastructure, specialized suppliers, and a concentrated pool of skilled labor. Additionally, being close to competitors can help attract more customers to the area, turning it into a hub for a specific industry or product. This phenomenon is commonly seen in industries like tech, fashion, and manufacturing. If you'd like more insights, feel free to ask!

 Which is a diseconomy of scale?

• Employees are more motivated.

• Communications deteriorate.

• Technological improvements take place.

• Bulk buying reduces costs

 The table shows the units of factors of production that a firm needs to employ for two different levels of output. What is the firm experiencing?

• constant returns to scale

• external economies of scale

• economies of scale

• external diseconomies of scale

 Which is an internal diseconomy of scale?

 

• a lack of communication in a firm

• a reduction of cost by buying in bulk

• a shortage of skilled labour in an area

• traffic congestion in a particular area

 What is not likely in an industry with many small firms?

 

• high level of competition

• high capital costs

• low barriers to entry

• low research expenditure

 What will happen to a firm that expands to take advantage of economies of scale?

 

• Average costs of production will decrease.

• The price of the firm’s products will increase.

• Average costs of production will increase.

• Profits will decrease.

 Which is an external economy of scale?

 

• buying machines from other companies

• lending money to other companies

• carrying out research with other companies

• selling output to other companies

 What is a feature of economies of scale but not diseconomies of scale?

• They lead to falling average costs.

• They result in rising average revenue.

• They operate in the short run.

• They are caused by management problems.

 In 2006, the Indian company, Ratnagin Gas and Power bought another Indian power company, Dabhol Powar. What type of integration is this?

• horizontal

• conglomerate

• vertical forwards

• vertical backwards

 A milk processing company takes over a group of dairy farms before merging with a chain of supermarkets. Which types of integration have taken place?

• vertical backward followed by vertical forward

• horizontal followed by vertical backward

• diversification followed by horizontal

• vertical forward followed by diversification