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Economics AI Paper 1 (Theme 3)

Total questions: 143

Worksheet time: 36hrs 45mins

Name
Class
Date
1.

What occurs when the owners of a business do not control the day-to-day decisions being made?

a)

Divorce between Ownership and Control

b)

Corporate Governance

c)

Strategic Drift

d)

Emergent Strategy

2.

What is a difficulty of the Divorce of Ownership and Control?

a)

Managers pursue own interests instead of owners' interests

b)

Managers pursue rising share prices

c)

Managers pursue dividends

d)

Managers solely pursue owners' interests

3.

Which method of growth carries more risk?

a)

Internal/Organic

b)

External/Inorganic

4.

Which of the following is NOT Internal/organic growth?

a)

Opening a new location

b)

Expanding through internet selling

c)

Merging with a similar company

d)

Offering franchises

5.

HORIZONTAL integration occurs when...

a)

firms in the same industry and at the same stage of the production process combine to form a larger business.

b)

when a firm expands by combining with an existing business in the same industry but at a different stage of the production process.

c)

Involves take over or merger with another firm in an unrelated industry.

6.

Vertical integration occurs when...

a)

firms in the same industry and at the same stage of the production process combine to form a larger business.

b)

when a firm expands by combining with an existing business in the same industry but at a different stage of the production process.

c)

Involves take over or merger with another firm in an unrelated industry.

7.

Conglomerate merger occurs when -

a)

firms in the same industry and at the same stage of the production process combine to form a larger business.

b)

when a firm expands by combining with an existing business in the same industry but at a different stage of the production process.

c)

take over or merger with another firm in an unrelated industry.

8.

Apple buying a company that creates microchips for phones and computers is an example of...

a)

Backward Vertical integration

b)

Horizontal Integration

c)

Conglomerate Integration

d)

Forward Vertical Integration

9.

If Samsung purchased a fruit farm this would be an example of....

a)

Vertical integration

b)

Horizontal integration

c)

Conglomerate Integration

10.

Mcdonalds buying a cattle farm would be an example of...

a)

Backward Vertical integration

b)

Horizontal integration

c)

Diversification

d)

Forward Vertical integration

11.

One motive for a demerger would be:

a)

To increase costs

b)

To allow the company to specialise in its core business

c)

To benefit from economies of scale

d)

To increase the motivation of the workforce

12.

A vertical backwards takeover

a)

Allows the company to control its customers

b)

Increases competition in the market

c)

Provides the company with more security of supply

13.

A horizontal merger is likely to reduce

a)

diseconomies of scale

b)

economies of scale

c)

competition

d)

company revenue

14.

What is the first and most important objective of almost all business organisations?

a)

Profit Maximisation

b)

Growth

c)

Survival

d)

Social Responsibility

15.

An Individual or group which has interest in business because they are affected by its activities and decisions.

a)

Shareholders

b)

Travellers

c)

Stakeholders

d)

Students

16.

What is the condition for profit maximisation

a)

The minimum reward that is just sufficient to keep the entrepreneur in business.

b)

When total revenue exceeds total cost

c)

When marginal cost = marginal revenue

d)

When price is below average variable cost

e)

When price is below average total cost

17.

If the marginal revenue is less than the marginal cost then to profit maximize a firm should:

a)

Reduce output

b)

Increase output

c)

Leave output where it is

d)

Increase costs

18.

If the price is less than the average costs but higher than the average variable costs:

a)

The firm is making a loss and will shutdown in the short term

b)

The firm is making a profit

c)

The firm is making a loss but will continue to produce in the short term

d)

The firm is making a loss and is making a negative contribution to fixed costs

19.

The shut-down point of a perfectly competitive firm is at the minimum point on its short-run average variable cost curve.

a)

True

b)

False

20.

Every profit-maximizing firm should produce a level of output where marginal revenue is equal to marginal cost.

a)

True

b)

False

21.

Choose the options that determine the relationship between MR and TR.

a)

When MR is 0, TR at the highest point.

b)

When MR is positive, TR increases.

c)

MR is zero when TR is decreasing.

d)

TR is zero when MR is at the highest point.

e)

TR is decreasing when MR is negative.

22.

At which point is profit maximisation

a)

MC=MR

b)

MR=0

c)

AC=AR

d)

MC=AC

e)

MC=AR

23.

At which point is revenue maximisation

a)

MC=MR

b)

MR=0

c)

AC=AR

d)

MC=AC

e)

MC=AR

24.

At which point is sales maximisation

a)

MC=MR

b)

MR=0

c)

AC=AR or TC=TR

d)

MC=AC

e)

MC=AR

25.

What is cost plus pricing

a)

Pricing in the long-run based on the average total cost and adding a profit mark up.

b)

Pricing in the short-run based on the average total cost and adding a profit mark up.

c)

Setting P=MC

d)

Setting P=AC

26.

A profit maximising firm will produce output equal to

a)

0A

b)

0B

c)

0C

d)

Will produce no output

27.

A revenue maximising firm will produce output equal to

a)

0A

b)

0B

c)

0C

d)

Will produce no output

28.

A sales maximising firm will produce output equal to

a)

0A

b)

0B

c)

0C

d)

Will produce no output

29.

A sales maximising firm will sell at a price of

a)

0E

b)

0F

c)

0G

d)

0H

30.

A revenue maximising firm will sell at a price of

a)

0E

b)

0F

c)

0G

d)

0H

31.

A profit maximising firm will sell at a price of

a)

0E

b)

0F

c)

0G

d)

0H

32.

Define profit satisficing

a)

When managers aim to maximise satisfaction of all stakeholders

b)

When managers aim to maximise satisfaction of all shareholders

c)

When managers aim to make enough money to keep shareholders happy and then maximise their own rewards

d)

When managers aim to maximise their own rewards irrespective of the impact on the company.

33.

Select the correct equation:

a)

TR= Σ\Sigma AR

b)

MR= ΔTRΔQ\frac{\Delta TR}{\Delta Q}

c)

TR=ARTotal OutputTR=\frac{AR}{Total\ Output}

d)

AR = TR x Total Output

34.

The formula for marginal revenue is...

a)

TR − TCTR\ -\ TC

b)

TR÷QTR\div Q

c)

ΔTR÷ΔQ\Delta TR\div\Delta Q

d)

Average cos⁡t ÷ quantityAverage\ \cos t\ \div\ quantity

35.

If the price of Vans goes up, and the total revenue goes down, what can we say about the elasticity?

a)

The demand for Vans is elastic

b)

The demand for Vans is inelastic

36.

If the price of gas goes up and total revenue goes up, what does that say about the elasticity of gas?

a)

The demand for gas is elastic

b)

The demand for gas is inelastic

37.
Short run marginal costs eventually increase because of the effects of:
a)
increasing marginal product
b)
diminishing marginal product
c)
increasing fixed costs
d)
diseconomies of scale
38.

When total output is at its maximum, marginal output must be:

a)

greater than one

b)

equal to one

c)

equal to zero

d)

less than one

39.
A firm is producing 100 units of output at a total cost of $400. The firm’s average variable cost is $3 per unit. What is the firm’s total fixed cost? 
a)
$100
b)
$1
c)
$300
d)
$50
40.
Assume that the fixed cost is $50. Based on the cost and output data in the table, what is the marginal cost when the firm increases its output from three to four units AND the average total cost of producing 4 units (respectively)? 
a)
MC=$35; ATC=$40
b)
MC=$35; ATC=$35
c)
MC=$25; ATC=$35
d)
MC=$25; ATC=$25
41.

If AVC is $25 and AFC is $10 at five units, what is TC?

a)

$35

b)

$175

c)

$250

d)

$50

e)

$10

42.

If a firm produces no output, which of the following will occur?

a)

It will have fixed costs, but not variable costs.

b)

It will have fixed costs and variable costs.

c)

It will have variable costs, but not fixed costs

d)

It will not have fixed costs or variable costs.

e)

None of the answers

43.
The ATC and AVC curves intersect the Marginal Cost curve at their....
a)
lowest point
b)
highest point
c)
midpoint
d)
endpoint 
44.

Internal economies of scale are those that

a)

Result from changes in production techniques

b)

Increase due to the growth of the industry as a whole

c)

Generate lower per unit production costs

d)

Reduce production costs in the short run

45.
If a firm doubles its use of inputs and finds that output increases by 50%, then it has experienced
a)
Growth
b)
Economies of scale
c)
Diseconomies of scale
d)
Evolution
46.
Machinery is likely to be efficient. what economies it indicate?
a)
Financial Economies
b)
Buying Economies
c)
Technical Economies
d)
Managerial Economies
47.
The output range in region "c" is associated with......
a)
Economies of Scale
b)
Internal economies of Scale
c)
Internal diseconomies of Scale
d)
Diseconomies of Scale
48.

Define purchasing and marketing economies of scale

a)

Large firms get a discount when buying in bulk

b)

Larger plants are more efficient, many firms also need a certain piece of machinery but do not make full use of it, as a business expands it makes better use of that machine and average costs fall (called indivisibility).

c)

As the firm grows it can hire more specialist managers for things such as finance, marketing, PR and HR

d)

Large firms have an advantage when raising finance, banks will be more willing to lend them money as they have larger assets to offer as security

e)

As a firm grows it can move into other areas, diversifying.

49.

Define technical economies of scale

a)

Large firms get a discount when buying in bulk

b)

Larger plants are more efficient, many firms also need a certain piece of machinery but do not make full use of it, as a business expands it makes better use of that machine and average costs fall (called indivisibility).

c)

As the firm grows it can hire more specialist managers for things such as finance, marketing, PR and HR

d)

Large firms have an advantage when raising finance, banks will be more willing to lend them money as they have larger assets to offer as security

e)

As a firm grows it can move into other areas, diversifying.

50.

Define specialisation and managerial economies of scale

a)

Large firms get a discount when buying in bulk

b)

Larger plants are more efficient, many firms also need a certain piece of machinery but do not make full use of it, as a business expands it makes better use of that machine and average costs fall (called indivisibility).

c)

As the firm grows it can hire more specialist managers for things such as finance, marketing, PR and HR

d)

Large firms have an advantage when raising finance, banks will be more willing to lend them money as they have larger assets to offer as security

e)

As a firm grows it can move into other areas, diversifying.

51.

Define financial economies of scale

a)

Large firms get a discount when buying in bulk

b)

Larger plants are more efficient, many firms also need a certain piece of machinery but do not make full use of it, as a business expands it makes better use of that machine and average costs fall (called indivisibility).

c)

As the firm grows it can hire more specialist managers for things such as finance, marketing, PR and HR

d)

Large firms have an advantage when raising finance, banks will be more willing to lend them money as they have larger assets to offer as security

e)

As a firm grows it can move into other areas, diversifying.

52.

Define risk-bearing economies of scale

a)

Large firms get a discount when buying in bulk

b)

Larger plants are more efficient, many firms also need a certain piece of machinery but do not make full use of it, as a business expands it makes better use of that machine and average costs fall (called indivisibility).

c)

As the firm grows it can hire more specialist managers for things such as finance, marketing, PR and HR

d)

Large firms have an advantage when raising finance, banks will be more willing to lend them money as they have larger assets to offer as security

e)

As a firm grows it can move into other areas, diversifying.

53.

There are many examples of external economies of scale. Define labour economies of scale -

a)

Bigger industry means build-up of workers equipped with the skills needed

b)

Improved specialist services for that industry e.g. banking, insurance, marketing, waste disposal etc.

c)

Firms in the same industry are working together when concentrated in the same region

d)

When an industry is concentrated in one area, firms might specialise in the production of one component and then transport it to a main car assembly plant.

e)

Introduction of new research will make an industry more efficient, reducing average costs and pushing the LRAC curve downward.

54.

There are many examples of external economies of scale. Define ancillary and commercial services economies of scale -

a)

Bigger industry means build-up of workers equipped with the skills needed

b)

Improved specialist services for that industry e.g. banking, insurance, marketing, waste disposal etc.

c)

Firms in the same industry are working together when concentrated in the same region

d)

When an industry is concentrated in one area, firms might specialise in the production of one component and then transport it to a main car assembly plant.

e)

Introduction of new research will make an industry more efficient, reducing average costs and pushing the LRAC curve downward.

55.

There are many examples of external economies of scale. Define co-operation economies of scale -

a)

Bigger industry means build-up of workers equipped with the skills needed

b)

Improved specialist services for that industry e.g. banking, insurance, marketing, waste disposal etc.

c)

Firms in the same industry are working together when concentrated in the same region

d)

When an industry is concentrated in one area, firms might specialise in the production of one component and then transport it to a main car assembly plant.

e)

Introduction of new research will make an industry more efficient, reducing average costs and pushing the LRAC curve downward.

56.

There are many examples of external economies of scale. Define disintegration economies of scale -

a)

Bigger industry means build-up of workers equipped with the skills needed

b)

Improved specialist services for that industry e.g. banking, insurance, marketing, waste disposal etc.

c)

Firms in the same industry are working together when concentrated in the same region

d)

When an industry is concentrated in one area, firms might specialise in the production of one component and then transport it to a main car assembly plant.

e)

Introduction of new research will make an industry more efficient, reducing average costs and pushing the LRAC curve downward.

57.

There are many examples of external economies of scale. Define technology economies of scale -

a)

Bigger industry means build-up of workers equipped with the skills needed

b)

Improved specialist services for that industry e.g. banking, insurance, marketing, waste disposal etc.

c)

Firms in the same industry are working together when concentrated in the same region

d)

When an industry is concentrated in one area, firms might specialise in the production of one component and then transport it to a main car assembly plant.

e)

Introduction of new research will make an industry more efficient, reducing average costs and pushing the LRAC curve downward.

58.

Suppose a certain firm is able to produce 165 units of output per day when 15 workers are hired. The firm is able to produce 176 units of output per day when 16 workers are hired, holding other inputs fixed. The marginal product of the 16th worker is

a)

10 units of output.

b)

11 units of output.

c)

16 units of output.

d)

176 units of output.

59.

Gloria has decided to start her own snow removal business. To purchase the necessary equipment, Gloria withdrew $2,000 from her savings account, which was earning 3% interest, and borrowed an additional $4,000 from the bank at an interest rate of 7%. What is Gloria's annual opportunity cost of the financial capital that has been invested in the business?

a)

$60

b)

$280

c)

$340

d)

$660

60.

Economists use the term ________ _______ __ _____ to refer to the additional products a business produces as a result of hiring one more worker.

a)

Average Product of Labor

b)

Average Total Cost

c)

Marginal Revenue

d)

Marginal Product of Labor

61.

The Law of Diminishing Marginal Returns suggests that...

a)

As firms hire more workers, the additional value provided by those workers drops.

b)

Average Total Cost is always greater than Marginal Cost

c)

Monopolies are more efficient than businesses in perfectly competitive markets.

d)

Most people give up on seeking profits after they've made a reasonable amount of money

62.
What does point B represent?
a)
Production at greater than the country's minimum potential
b)
Production is less than the country's minimum potential
c)
Productive inefficiency
d)
Productive efficiency
63.
What does point Y represent on the PPC?
a)
Efficiency
b)
Unattainable / impossible
c)
Inefficency
d)
Nothing
64.

The firms is productively efficient at what level of output

a)

V

b)

X

c)

Q

d)

S

e)

T

65.

Allocative efficiency occurs at which price

a)

P

b)

M

c)

N

d)

K

e)

L

66.

The diagram relates to the generation of electricity by a firm X, a profit maximiser. If a regulator insists that the firm sets a price to achieve allocative efficiency, it would force it to:

a)

Make a profit of KZBY

b)

Maximise its profits

c)

Make a loss of area CXAL

d)

Make a loss of LANR

67.

Dynamic efficiency relates to:

a)

The efficiency associated with perfect competition

b)

The use of new technology and innovation

c)

When extensive economies of scale exist in an industry

d)

Low prices as a result of low barriers to entry

68.

The main problem for a regulator in setting an excessively low price cap on essential public utilities such as water is?

a)

It may encourage x-inefficiency

b)

It may encourage super-normal profits

c)

It may encourage diseconomies of scale

d)

It may act as a disincentive to adopting new technology

69.

When does allocative efficiency occur

a)

When P=MC and MB=MC

b)

When a firms output is at the lowest average cost

c)

How resources are distributed in the long run and is evidenced by the PPF shifting right

d)

When a firm produces on its lowest average cost curve

70.

When does x-efficiency occur

a)

When P=MC and MB=MC

b)

When a firms output is at the lowest average cost

c)

How resources are distributed in the long run and is evidenced by the PPF shifting right

d)

When a firm produces on its lowest average cost curve

71.

Which point in the diagram is allocatively efficient

a)

A

b)

B

c)

C

d)

D

e)

Insufficient information to answer

72.

Collusion most frequently occurs in industries that are

a)

oligopolistic

b)

monopolistically competitive

c)

monopolistic

d)

perfectly competitive

73.

If oligopolists engagein collusion and successfully form a cartel, the market outcome is

a)

the same as if it were served by a monopoly

b)

The same as if it were served by competitive firms

c)

The same as if it were served by competitive firms

d)

Known as Nash equilibrium

74.

As the number of sellers in an oligopoly increases

a)

Collusion is more likely to occur because of larger number of firms can place pressure on any firm that defects

b)

Output in the market tends to fall because each firm must cut back on production

c)

The price in the market moves further from marginal cost

d)

The price in the market moves closer to marginal cost

75.

Collusion is difficult for an oligopoly to maintain

a)

Because antitrust laws make collusion illegal

b)

Because, in the case of oligopoly, self-interest is in conflict with cooperation

c)

If additional firms enter of the oligopoly

d)

For all the above reasons

76.
What are the main characteristics of oligopoly?
a)
Few firms, independent, high barriers of entry
b)
Few firms, interdependent, high barriers of entry 
c)
Many firms, interdependent, low barriers of entry
d)
Many firm, independent, low barriers of entry
77.
What is the equilibrium of the below game?
a)
A,X
b)
A,Y
c)
B,X
d)
B,Y
78.

Which of these is not a feature of an oligopolistic market?

a)

Firms acting as price makers

b)

Extensive price competition

c)

The number of firms is usually small

d)

Firms are interdependent

79.

One difference between oligopolies and monopolistically competitive markets is that

a)

there is no deadweight loss in monopolistically competitive markets, but there is in oligopolies

b)

the products sold in monopolistically competitive markets are identical

c)

oligopolies have fewer barriers to entry

d)

firms maximize profits in monopolistically competitive markets but not in oligopolies

e)

there are fewer firms in oligopolistic markets than in monopolistically competitive ones

80.
The following table shows the profits associated with the pricing strategies of two oligopolistic firms, Agronomia and Farmingdale. Each firm has two possible strategies: to charge a low price or a high price. The first entry in each cell shows the profits to Agronomia and the second the profits to Farmingdale. If the two firms do not cooperate, what will be the profit for each firm?
a)
Agronomia = $50; Farmingdale = $100
b)
Agronomia = $150; Farmingdale = $150
c)
Agronomia = $300; Farmindale = $50
d)
Agronomia = $100; Farmingdale = $100
81.
What is the most predictable outcome in the Prisoner's Dilemma?
a)
both prisoners will remain silent
b)
prisoner A will testify against prisoner B
c)
prisoner B will testify against prisoner A
d)
both will testify against each other
82.
Factors that make it difficult for new firms to enter a market are called
a)
Barriers to entry
b)
Factors of production
c)
Limited supply
d)
Monopolistic Outlook
83.

A four-firm concentration ratio of 75%

a)

Implies a high degree of competition within the market.

b)

Means that the four largest firms in the industry earn 75% of the industry’s profits.

c)

Indicates that the four largest firms produce a total of 75 different brands.

d)

Shows that it is easy to enter into this market.

e)

None of the above.

84.

An industry is comprised of 20 firms, each with an equal market share. What is the four-firm concentration ratio of this industry?

a)

20%

b)

40%

c)

60%

d)

80%

85.
The profit-maximizing combination of output and price for a single-price monopoly is:
a)
Q1 & P1
b)
Q2 & P3
c)
Q1 & P4
d)
Q3 & P2
86.
A firm with market power engages in price discrimination to:
a)
earn a higher profit
b)
increase consumer surplus
c)
decrease deadweight loss
d)
make its demand more elastic 
87.
For the firm shown in the graph above, the short- run, profit-maximizing strategy would be to set output at:
a)
Q1, price at P3, and earn an economic profit 
b)
Q1, price at P1, and suffer a loss 
c)
Q2, price at P2, and earn an economic profit 
d)
Q2, price at P2, and earn only a normal profit 
88.
In order for a firm to engage in price discrimination, it must be: 
a)
producing in the inelastic portion of its demand curve to raise its price and increase total revenue 
b)
a price taker
c)
able to separate consumers into different groups based on demand elasticities 
d)
experiencing economies of scale in the relevant range of production
89.

A single-price monopoly is characterized by a marginal revenue curve that is

a)

upward sloping.

b)

downward sloping.

c)

horizontal.

d)

vertical.

90.
Economic profits for this monopoly are represented by area:
a)
0CGE
b)
0AJE
c)
AJHB
d)
BAJN
91.
Total costs for this monopoly are represented by area:
a)
BKL0
b)
CGE0
c)
AJE0
d)
BHE0
92.
Total revenue for this monopoly is represented by area:
a)
0CGE
b)
0AJE
c)
AJHB
d)
BAJH
93.
For this monopolist, what is the area of consumer surplus?
a)
ABHJ
b)
AJGC
c)
ARJ
d)
ARJE
94.

Suppose the diamond industry is a monopoly and suppose that there is an increase in the productivity of diamond miners. Which of the following would you predict will happen in the market for diamonds in the short run?

a)

An increase in the price of diamonds and no change in the number of diamonds sold

b)

An increase in the price of diamonds and a decrease in the number of diamonds sold

c)

No change in the price of diamonds and no change in the number of diamonds sold

d)

A decrease in the price of diamonds and an increase in the number of diamonds sold

95.

If a monopolist increases total output from 14 to 15 by lowering its price from £32 to £30, its marginal revenue would be

a)

-£2

b)

+£30

c)

+£2

d)

-£30

96.

A managing director of a monopoly firm with constant marginal costs has the following data:


Average revenue = £14

Marginal revenue = £10

Marginal cost = £8

Average variable cost = £8

Average total cost = £12


To maximise profits/minimise losses in the short run the firm should:

a)

Increase price and increase output.

b)

Reduce price and reduce output.

c)

Close down.

d)

Reduce price and increase output.

97.

For price discrimination to work, which of the following are required?


(i) The firm must face a downward sloping demand curve.

(ii) The firm must have at least two identifiable groups of customers with different price elasticities of demand.

(iii) The customers must be able to re-sell the product amongst themselves.

a)

i only

b)

i and ii only

c)

ii and iii only

d)

All of the above

98.

If a price discriminating monopoly charges a higher price to students, it is likely that the firm

a)

Wants to shift students’ demand curve.

b)

Is primarily concerned about the wellbeing of students.

c)

Believes that the student demand curve is price elastic.

d)

Believes that the student demand curve is price inelastic.

99.

A price-discriminating monopolist, faced with two demand curves of differing elasticity, will equate the marginal cost of production with

a)

The difference between the average revenues in both markets.

b)

Marginal revenue in each market.

c)

The difference between the marginal revenues in both markets.

d)

Average revenue in each market.

100.

In a contestable market

a)

there must be lots of firms

b)

there must be a few firms or more

c)

there can be any number of firms

101.

Choose the correct answers (there are three)

a)

The free market equilibrium exceeds the social optimum quantity.

b)

The free market equilibrium is below the social optimum quantity.

c)

There is a welfare loss equal to MTZ.

d)

There is a welfare loss equal to TZG.

e)

An increase in quantity from the free market equilibrium will lead to a net welfare gain.

102.

There is a condition for hit-and-run competition to be able to take place choose the answer you think makes the most sense:

a)

Supernormal profits earned must be greater than entry and exit costs.

b)

Supernormal profits must equal entry and exit costs.

c)

Supernormal profits earned must be smaller than entry and exit costs.

d)

Profits should not exceed the normal profit making level.

103.

In a contestable market:

a)

supernormal profits can be earned in the long run but not the short run.

b)

supernormal profits can be earned in the short run but not the long run.

c)

only supernormal profits can be earned in the short run and the long run.

d)

only normal profits can be earned in the short run and the long run.

104.

Barriers of entry will make market ________ efficient and ______ productive.

a)

less; less

b)

less; more;

c)

more; less

d)

more; more

105.

Which of the following is an assumption of contestable markets

a)

There are lots of firms in the industry

b)

There are few firms in the industry

c)

There is 1 firm in the industry

d)

Number of firms in the industry may vary from one to many

106.

Which of the following is an assumption of contestable markets (pick 2)

a)

There is freedom of entry and exit

b)

Firms do not compete with each other because there is high collusion

c)

Firms are short run profit maximisers and produce where MC=MR

d)

Firms produce homogenous goods

e)

Imperfect industry knowledge

107.

Which of the following is an assumption of contestable markets (pick 2)

a)

There are high barriers to entry and sunk costs

b)

Firms compete with each other and there is no collusion

c)

Firms are short run revenue maximisers and produce where MR=0

d)

Firms produce homogenous goods

e)

Perfect industry knowledge

108.

Which of the following is an assumption of contestable markets (pick 1 answer only)

a)

There are high barriers to entry and sunk costs

b)

Firms do not compete with each other and there is high collusion

c)

Firms are short run revenue maximisers and produce where MR=0

d)

Firms can produce homogenous goods or branded goods

e)

Imperfect industry knowledge

109.

In a contestable market

a)

Abnormal profits can be earned in the short run and only normal profits can be earned in the long run.

b)

Normal profits can only be earned in the short run

c)

Abnormal profits can be earned in the short run and long run

d)

Neither abnormal nor normal profits can be earned in the short or long run

110.

Which of the following barriers to entry are natural (select more than 1)

a)

Economies of scale – lower cost benefits to a number of smaller firms

b)

Network effects – Greater number of people who use one service the greater the individual benefits.

c)

Low set-up costs - Low costs of starting and sunk costs

d)

Predatory acquisition – Purchasing a rival to gain a controlling interest.

e)

Strong brand – Locks in existing customers and deters entry.

111.

Which of the following barriers to entry are artificial/strategic (select more than 1)

a)

Economies of scale – lower cost benefits to a number of smaller firms

b)

Network effects – Greater number of people who use one service the greater the individual benefits.

c)

Low set-up costs - Low costs of starting and sunk costs

d)

Predatory acquisition – Purchasing a rival to gain a controlling interest.

e)

Strong brand – Locks in existing customers and deters entry.

112.

Which of the following barriers to entry are natural (select more than 1)

a)

Control of a key scarce resource e.g. Airline controlling access to an airport

b)

High set-up costs – These can be costs of starting (e.g. car industry) or sunk costs leaving the industry

c)

Low R&D costs - Low R&D costs means existing firms can set price lower making it harder for new firms to compete

d)

Predatory pricing – Deliberately lowering prices to force rivals out of the market

e)

Switching costs – Make it difficult for consumers to switch

113.

Which of the following barriers to entry are artifical (select more than 1)

a)

Control of a key scarce resource e.g. Airline controlling access to an airport

b)

High set-up costs – These can be costs of starting (e.g. car industry) or sunk costs leaving the industry

c)

Low R&D costs - Low R&D costs means existing firms can set price lower making it harder for new firms to compete

d)

Predatory pricing – Deliberately lowering prices to force rivals out of the market

e)

Switching costs – Make it difficult for consumers to switch

114.

Which of the following barriers to entry are natural (select 1)

a)

High R&D costs – Pharmaceuticals and chemical industry are typical examples

b)

High diseconomies of scale – Making it more difficult for new firms to enter as existing companies are already large.

c)

No advertising - Allows incumbent firms to cut costs and decrease price

d)

Advertising – Sunk cost, the more spent by incumbent, the greater the deterrent

e)

Limit pricing – Incumbent firm sets a low price so entrants cannot make a profit by selling at a price just below average cost.

115.

Which of the following barriers to entry are artificial/strategic (select more than 1)

a)

High R&D costs – Pharmaceuticals and chemical industry are typical examples

b)

High diseconomies of scale – Making it more difficult for new firms to enter as existing companies are already large.

c)

No advertising - Allows incumbent firms to cut costs and decrease price

d)

Limit pricing – Incumbent firm sets a low price so entrants cannot make a profit by selling at a price just below average cost.

e)

Advertising – Sunk cost, the more spent by incumbent, the greater the deterrent

116.

Which of the following barriers to entry are artificial/strategic (select more than 1)

a)

High R&D costs – Pharmaceuticals and chemical industry are typical examples

b)

High economies of scale – Making it more difficult for new firms to enter as existing companies are already large.

c)

Loyalty scheme’s – Tesco’s Clubcard helps retain customers loyalty

d)

Exclusive contacts, patents and licenses – Prevent other firms entering the industry

e)

Vertical integration – Makes life more difficult for new entrants as manufacturers have their own retail outlets etc.

117.

What does the degree of contestability mainly depend on

a)

Extent of barriers to entry

b)

Number of firms in the industry

c)

Degree of homogeneity of products

d)

Level of competition between firms

118.

Sunk costs are best described as

a)

The costs of laying underground cables.

b)

Costs that have to be paid in the short run.

c)

Costs that cannot be recovered if a business decides to close down production and leave the market.

d)

Costs that are involved in starting a new business.

119.

Wage elasticity of supply measures

a)

Change in wages divided by change in quantity of labour supplied

b)

Change in quantity of labour supplied divided by change in wages

c)

Percentage change in wages divided by percentage change in quantity of labour supplied

d)

Percentage change in quantity of labour supplied divided by percentage change in wages

120.

If labour is a small percentage of the total costs of an industry, this will tend to make the wage elasticity of labour demand

a)

High

b)

Low

c)

Positive

d)

Zero

121.

The value of the wage elasticity of labour supply tends to

a)

Increase as the skill level rises.

b)

Decrease as the skill level rises.

c)

Be unrelated to skill level.

d)

Remain unchanged with skill level.

122.

In the short run, the supply of low-skilled labour tends to be

a)

Perfectly wage inelastic.

b)

Perfectly wage elastic.

c)

More wage elastic than in the long run.

d)

Less wage elastic than in the long run.

123.

In the long run, the supply of low-skilled labour is

a)

Wage elastic but is less wage elastic than in the short run.

b)

Wage elastic and is more wage elastic than in the short run.

c)

Wage inelastic but is more wage elastic than in the short run.

d)

Wage inelastic and is less wage elastic than in the short run.

124.

Which of the following is most likely to be a sunk cost?

a)

Costs of advertising a new product.

b)

Costs of leasing an airplane.

c)

Costs of buying electricity.

d)

Costs of paying wages to staff.

125.

The defining characteristic of a perfectly contestable market is

a)

The absence of sunk costs.

b)

That each firm in the market has price setting power.

c)

That each firm can achieve economies of scale.

d)

The absence of any regulatory controls on prices.

126.

In relatively low-skilled jobs, we are likely to see a labour supply curve such as which of the following:

a)
b)
c)
d)
127.

The main reason why the supply curve for labour is upward sloping is because ...

a)

... as the wage rate falls, an increasing number of people are prepared to work

b)

... as the wage rate rises, an increasing number of people are prepared to work

c)

... as the wage rate falls, an increasing number of people believe they can do the job

d)

... as the wage rate rises, fewer people feel they can do the job

128.

All of the following are likely to increase the supply of labour EXCEPT:

a)

an increase in migration

b)

an increase in the retirement age

c)

an increase in the school leaving age

d)

an increase in the female working population

129.
a)

Back-bending Labor Supply Curve

b)

Back-breaking Labor Supply Curve

c)

Unspeakable Greed of the Wealthy

d)

Disgusting Sloth of the Welfare Class

130.

In a nationalised industry, the government may employ too many people, because they might be concerned with employment figures rather than profit maximisation.

a)

True

b)

False

131.

Theoretically, the profit motive causes privatised firms to be more productively efficient and this should lead to lower prices for consumers.

a)

True

b)

False

132.

Selling off nationalised firms may only generate a one-off increase in revenue for the government, and prevent the government from gaining future streams of tax revenue from profitable nationalised companies.

a)

True

b)

False

133.

Nationalised companies tend to be more responsive to the needs of consumers, so quality of service will, theoretically, be higher than in a privatised industry.

a)

True

b)

False

134.

Privatisation does not always lead to greater competition, particularly if the companies are natural monopolies e.g. telecoms infrastructure, gas pipes, rail network.

a)

True

b)

False

135.

In a nationalised industry, governments may be too focused on short-term goals or winning elections rather than making decisions that are economically optimal for the long term.

a)

True

b)

False

136.

The divorce between ownership and control tends to occur more frequently in

a)

International organisations such as the IMF.

b)

Small limited companies.

c)

Larger public limited companies.

d)

State-owned industries.

137.

The traditional profit-maximising theory of the firm has been criticised by some economists because

a)

Not all firms have full information on their costs.

b)

Not all firms have full information on their revenues.

c)

Shareholders can have little control over managers.

d)

Not all firms are run on purely commercial lines.

e)

All of the above.

138.

The introduction of a national minimum wage will lead a business to reduce its number of employees most when

a)

The demand for its final product is price inelastic.

b)

Wage costs are a small proportion of total costs.

c)

There is a high degree of substitutability between capital and labour.

d)

The supply of substitute factors of production is price inelastic.

139.

If employees cannot accept a job because of the costs of moving area this is known as

a)

Occupational mobility.

b)

Cyclical unemployment.

c)

Structural immobility.

d)

Geographical immobility.

140.

If the minimum wage is set above the equilibrium wage, then other things being equal

a)

There will be equilibrium in the labour market.

b)

There will be excess demand in the labour market.

c)

There will be excess supply in the labour market.

d)

More people will be employed.

141.

Suppose that it is relatively easy for new firms to enter into an industry. We would expect

a)

It to be relatively easy for the firms to form a cartel.

b)

The firms to charge the monopoly price and produce the monopoly output.

c)

The industry to exhibit strong economies of scale.

d)

The likelihood of the firms making supernormal profits to be reduced.

142.

In an oligopoly, for firms to engage in price collusion it is necessary for firms in the cartel to

a)

Be able to undercut each other on price.

b)

Charge different prices to different customers depending on cost.

c)

Be able to produce more than the output quotas they have agreed.

d)

Control a large percentage of market supply.

143.

Mary used to work as a marketing manager, but she has set up her own business. Out to dinner one night with her friends Alice the accountant and Elaine the economist, she proudly announced her annual figures. Alice was delighted for Mary – revenue was £150,000 for the year and her running costs £80,000. Elaine was less impressed – she knew that Mary used to earn £80,000, and advised her to go back to her previous job. If Mary is completely rational, what should she do?

a)

Listen to Alice’s advice.

b)

Take Elaine’s advice.

c)

Change the topic of conversation and, later, phone her friend Jemima (who is a management consultant)

d)

Give Elaine a hard stare, tell her to mind her own business and then walk out of the restaurant.

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ความสามารถของฮีโร่และวายร้ายใน Marvel

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