Section A

Answer all questions.

1 New oil reserves are discovered.

What has increased in supply?
A capital
B enterprise
C labour
D land

2 An increase in the number of manufacturing robots in the car manufacturing

industry represents an increase in the quantity of which factor of production?
A capital C labour
B enterprise D land

3 Which pair of economic institutions can be found in a market economy?

A charities and public corporations
B multinationals and commercial banks
C public corporations and private companies
D stock exchange and government hospitals

4 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?

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

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5 An industry is experiencing diseconomies of scale.
What will be happening to long run average cost and total cost?

6 Which activity takes place in the tertiary sector?

A assembling computers
B giving legal advice
C harvesting grain
D making bread

7 The diagram shows an initial production possibility curve of PPC1.

What may cause the movement of the production possibility curve from PPC1 to
PPC2?
A a better educated workforce
B a decrease in availability of raw materials
C increased wages
D lower productivity

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8 An entrepreneur buys a workshop for $200 000 to make plastic boxes. In the first
year of operation he spends $70 000 on materials, employs ten production workers
paid by the amount produced (piece rate) at a total cost of $80 000 and buys two
delivery vehicles for $10000 each.

What are his total variable costs?

A $100 000 B $150 000 C $220 000 D $370 000

9 What is usually considered to be an advantage to a firm of using division of labour?

A high labour turnover
B increased mechanisation
C movement of labour between tasks
D need for quality control

10 The diagrams represent total cost curves (TC) of four firms in the short run.
Which firm has only fixed costs?

11 Which statement about fixed costs is correct?

A They exist only in the long run.
B They include raw material and direct labour costs.
C They increase at the same rate as output.
D They must be paid even if there is no output.

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12 When a firm produces 500 units its total variable cost is $1000. Its total fixed cost is
$1500.
What is the average cost of 500 units?
A $2
B $3
C $5
D $2500

13 The diagram shows the costs of a firm.

What is the firm's total variable cost at an output of 100 units?

A $100
B $500
C $10 000
D $50 000

14 What is not equal to the average revenue?

A the price of each unit
B the profit from each unit
C the revenue from each unit
D the total revenue divided by output

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15 Two private firms, an iron ore mining company and an iron and steel manufacturer,
agree to amalgamate.
How would this action be described?
A co-operative
B horizontal take-over
C partnership
D vertical merger

16 An economy is producing at X.

What is the opportunity cost of choosing to produce at Y instead of X?

A 25 machines
B 50 units of food
C 75 machines
D 150 units of food

17 There has been a move away from labour-intensive to capital-intensive production

in developed economies.
Which type of activity remains labour-intensive?
A assembling cars
B designing clothes
C farming cereals
D manufacturing steel

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18 In 2007, a huge industrial mining company attempted to buy another industrial
mining company. The attempt failed.
In 2010, the same mining company made an offer to buy a company that sells
potash, which is used to improve agricultural soils.
How may the mining company’s attempts to buy these other companies be
described?

19 What is usually an advantage of a small firm?

A the ability to benefit from bulk buying arrangements
B the ability to raise finance from a stock exchange
C the ability to respond quickly to changes in consumer demand
D the ability to run a national advertising campaign

20 A butcher has achieved backward vertical integration.

What could have happened?
A The butcher bought a cattle farm.
B The butcher employed more workers.
C The butcher merged with another butcher.
D The butcher sold cheese and eggs as well as meat.

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 Section B

Answer any three questions.

2 (a) Identify the two human factors of production. [2]

(b) Explain two economic concepts shown by a production possibility curve diagram. [4]

(c) Analyse, using a production possibility curve diagram, what effect net immigration is likely to
have on an economy. [6]

(d) Discuss whether small firms can compete successfully against large firms. [8]

3 (a) Define 'average costs'. [2]

(b) Explain how a producer would use the concept of opportunity cost when making production
decisions. [4]

(c) Analyse, using a production possibility curve diagram, how an increase in labour productivity
will affect an economy. [6]

(d) Discuss the advantages and disadvantages of multinational companies to the host country.
[8]

4 Choice must be made when deciding on which policy to adopt. Firms tend to integrate with each
other to seek various targets

(a) Define opportunity cost. [2]

(b) Explain the difference between average fixed cost and average variable cost. [4]

(c) Analyse, using a production possibility curve (PPC) diagram, the effect of an increase in
unemployment on an economy. [6]

(d) Discuss whether consumers benefit from horizontal mergers. [8]

5 (a) Define a profit. [2]

(b) Explain, giving examples, the difference between an internal economy of scale and an
external economy of scale. [4]

(c) Analyse how average cost can change as output increases. [6]

(d) Discuss whether a sale of a public sector organization to the private sector is of overall
benefit. [8]