ECONOMIES OF SCALE

1- Which is an external economy of scale? J03

A- buying machines from other companies

B- carrying out research with other companies
C- lending money to other companies
D- selling output to other companies

2- What is a feature of economies of scale but not diseconomies of scale? N03

A- They are caused by management problems.

B- They operate in the short run.
C- They lead to falling average costs.
D- They result in rising average revenue.

3-Why are firms making similar product often located near each other

A-competition may be reduced

B-external economies may be possible

C-land may be cheaper

D-overheads may be increased

4- The table shows the units of factors of production that a firm needs to employ for two different
levels of output. N04

What is the firm experiencing?

A- constant returns to scale
B- economies of scale
C- external diseconomies of scale
D- external economies

5- Which is a diseconomy of scale? N06/J10

A- Bulk buying reduces costs.

B- Communications deteriorate.
C- Employees are more motivated.
D- Technological improvements take place.

6- Which diagram represents a firm with economies of scale? J07

7-What is happening when a firm is experiencing diseconomies of scale

A-it has rising long-run average cost

B-it is operating in a short run

C-its fixed costs are less than variable cost

D-its output is increasing faster than its inputs

8-India is experiencing rapid growth in air travel. The number and sixe of airlines is increasing
every year. Which effect arising from this growth is an external economy of scale J07

A-banks are more prepared to lend to large airlines rather than small airlines

B-fuel suppliers charge less to airlines that buy in bulk

C-institutions are established to train flight crew

D-larger airlines operate aircraft which can carry more passengers

9-What is an advantage of small scale production J11

A-diseconomies of scale

B-division of labour

C-flexible production

D-spreading of overheads

10- Which is an external economy of scale? N12

A- availability of training facilities in local colleges

B- greater production from employees
C- increased credit facilities from banks
D- lower costs through bulk buying
11-What will happen to a firm that expands to take advantage of economies of scale

A-average cost of production will decrease

B-average cost of production will increase

C-profits will decrease

D-the price of the firm product will increase

TOPIC NO-19 INTEGRATION

1-A large clothing manufacturer expanded by acquiring retail clothing outlets. Of what is this
example

A-diversification

B-external economies of scale

C-horizontal integration

D-vertical integration

2- Wal-Mart, the world’s biggest food retailer, has acquired a large number of supermarkets.
What type of integration is this? J05

A- conglomerate
B- horizontal
C- vertical backward
D- vertical forward

3- In 2004 Banco Santander, a Spanish bank, bought Abbey National, a British bank.
What was achieved by this? N05

A- diversification
B- horizontal integration
C- vertical integration backwards
D- vertical integration forwards

4- What is an example of backward vertical integration? N06

A- An aircraft manufacturer takes over an airline.

B- A bank takes over another bank.
C- A plastics manufacturer takes over a drinks firm.
D- A tyre manufacturer takes over a rubber plantation.

5- In 2006, the Indian company, Ratnagin Gas and Power bought another Indian power company,
Dabhol Power.
What type of integration is this? J08

A- conglomerate
B- horizontal
C- vertical backwards
D- vertical forwards

6-A motor car manufacturer buys a chain of showrooms where the new cars are sold to the public.
Of what is this example

A-conglomerate

B-horizontal

C-vertical backwards

D-Vertical forwards

7- In August 2008, Infosys, an Indian information technology company, bought Axon, a UK

information technology company.
Which type of integration is this? J10/J13

A- conglomerate
B- horizontal
C- vertical backwards
D- vertical forwards
8- 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? N10

A- diversification followed by horizontal

B- horizontal followed by vertical backward
C vertical backward followed by vertical forward
D- vertical forward followed by diversification

9-In January 2008, ICI, a major UK chemical firm, was bought by its rival, a Dutch chemical
firm. What definitely occurred when the Dutch firm bought ICI N12

A-a partnership

B-economies of scale

C-horizontal integration

D-increased profits

10- To achieve horizontal integration a record company producing compact discs (CDs) could
merge with another firm.
What would this firm most likely be doing? N13

A- owning shops selling CDs

B- producing CDs
C producing CD players
D- producing machinery used in the making of CDs