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ECONOMICS
YEAR 13

1. In August 2009 the Competition Commission published a Groceries Supply

Code of Practice. Large supermarket chains were paying very low prices
to some suppliers. Which type of market power does this suggest the
large supermarket chains have?

A Monopsony
B Monopolistic competitive
C Perfectly competitive
D Natural monopoly

2. General Motors made a loss of $4.3billion in 2009. Under which one of the
following conditions are firms such as this likely to keep operating?

A The market is highly contestable

B They are covering average variable costs in the short run
C Total revenue is less than total cost in the long run
D They are covering marginal costs in the short run

3. A mobile phone company finds that its total costs are best illustrated by
the following curve. What can be deduced about costs over the usual
range of output AB?

A Total costs are rising

B Marginal costs are zero
C Average costs are constant
D Average costs are rising
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4. Super normal profits being made by a perfectly competitive firm in the

short run would disappear in the long run because of

A freedom of entry into this market

B firms engaging in large scale advertising
C differentiated goods
D allocative inefficiencies

5. A profit maximising monopolist facing constant average costs experiences

a decrease in demand. Other things being equal, which of the following is
likely to happen?

Output Price Profit

A Stays constant Falls Falls

B Rises Rises Stays constant
C Falls Rises Falls
D Falls Falls Falls

6. A firm might aim to maximise sales rather than profits in the short run
because:

A it is in a market with no other competitors

B it wishes to deter the entry of new firms
C supplies of raw materials are limited
D there are substantial barriers to entry in this industry.

7.

The diagram shows the total revenue curve of a firm. It can be deduced
that:
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A average revenue and marginal revenue will be upward sloping as

output increases
B average revenue will be equal to marginal revenue as output increases
C the firm will be making maximum profit at output 0X
D average revenue and marginal revenue will both be falling as output
increases.

8. A profit-maximising firm will produce at the productively and allocatively

efficient level of output in which of the following market conditions?

A Perfect competition in the long run

B Monopoly
C Perfect competition in the short run
D Monopolistic competition in the long run

9. Firms are leaving a perfectly competitive industry. This suggests that for
these firms:

A average revenue exceeds marginal revenue

B marginal revenue exceeds average revenue
C average fixed cost exceeds average revenue
D average variable cost exceeds average revenue

10. If a firm’s fixed costs increase by 20 per cent, marginal costs will
increase by:

A zero
B 10%
C 20%
D 100%

11. A profit maximising monopolist operates at the output level where:

A total revenue is at a maximum

B the price is equal to the marginal cost
C the price is equal to the marginal revenue
D the marginal profit is zero.
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12. A firm cuts the price of its product. As a result, total revenue falls and
marginal cost rises. Over this range of output, it can be inferred that

A the price elasticity of demand is relatively elastic and there are

diseconomies of scale
B the price elasticity of demand is relatively inelastic and there are
diminishing returns to a variable factor of production
C the price elasticity of demand is unitary and there are diseconomies
of scale
D the firm's marginal profit would increase

13. A firm with monopoly power decreases the price of its product to
increase its market share up to the output at which it just earns normal
profit. Which of the following is the best description of the firm’s
objective?

A Profit maximisation in the short run

B Increased market contestability
C Revenue maximisation in the long run
D Sales maximisation

14. A pizza restaurant faces the following demand curve (D). Which one of
the following is necessarily true?

A Marginal revenue will be positive then negative as price falls

B Revenue maximisation occurs at a price of £6
C Sales are maximised at a price of £6
D Cutting the price from £6 to £5 will increase profits
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15. A small profit maximising café faces the following cost and revenue
curves. It is noted that the café is never full.

Which one of the following is most likely to apply to this café?

A It is productively inefficient
B It is making supernormal profits
C It operates in a perfectly competitive market
D It is allocatively efficient

16. The table gives information about the short run output, costs and
revenue of a profit maximising firm making playground equipment. Two
columns have been left blank for your own workings.

Which one of the following would be consistent with this information?

A At output level 1 average fixed cost is lower than at output level 4

B At output level 2 a profit of £9 000 is made
C At output level 4 marginal cost equals marginal revenue
D At output level 5 marginal revenue is greater than marginal cost
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17. The table gives weekly information about the possible short run output,
costs and revenue of a firm making military equipment. Some cells have
been left blank for your own workings.

Which level of weekly output would mean that the firm is sales
maximising?

A 1
B 2
C 3
D 4

18. The diagram shows the costs and revenues for a firm with monopoly
power.

Which of the following statements is true?

A At output T the firm is revenue maximising

B At output V the firm is allocatively efficient
C At output Z the firm is productively efficient
D At profit maximising output the supernormal profits are KLMN
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19. Draw a diagram to illustrate a natural monopoly making supernormal

profit in the short-run. (6 marks)

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20. Draw a diagram to illustrate a firm, operating under conditions of

perfect competition, making a loss. (6 marks)

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