Unit 5 Test

Question 1

In August 2008 , Infosys , an Indian information technology company , bought Axon , a UK information technology company . Which type of integration is this ? 
A, conglomerate
B, horizontal 
C, vertical backwards
D, vertical forwards

Answer 1

B

Question 2

If a perfectly competitive market becomes a monopoly , what will be likely to increase and what will be likely to decrease ?
A increase barriers to entry, decrease economies of scale
B increase long run profits, decrease competition
C increase output, decrease market share
D increase customer choice, decrease prices

Answer 2

B

Question 3

Barilla , an Italian company , is the world ‘ s largest pasta maker . It also produces bread . In 2006 its bread production contributed $ 1 . 5 billion to its total revenue of $ 5 . 1 bn . Overall profit was $ 0 . 6 bn . What was the total cost to Barilla of producing pasta and bread in 2006 ? A $ 2 . 1 bn B $ 3 . 0 bn C $ 3 . 6 bn D $ 4 . 5 bn

Answer 3

D

Question 4

A firm which sells its product for $6 has the following total costs

Units, total costs: (0,40), (10,100), (20,120), (30,150)

Which statement is correct ?

A Average cost is lowest when 10 units are produced
B The firm breaks even when 20 units are sold
C The firm has no fixed costs
D Total variable costs fall continuously over these outputs

Answer 4

B

Question 5

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

Answer 5

C

Question 6

Which change must occur when a firm starts to experience diseconomies of scale ?

A Average costs begin to rise
B Employees are made redundant
C Profits turn into losses
D Variable costs become fixed

Answer 6

A

Question 7

A firm raised the price of its product from $ 10 to $ 15 and as a result its sales ten from 200 units to 150 units . What happened to its average revenue and total revenue ?

Answer 7

Average revenue increases and total revenue increases

Question 8

The table shows the total costs of a firm. It can sell the units for $4 each

Units, total cost: (5,17),(6,18),(7,21),(8,23)

How many units will the firm have to produce to maximise its profits?

A, 5 B, 6 C, 7 D, 8

Answer 8

D

Question 9

Which type of economy of scale results from a firm producing a diverse range of products?

A Buying
B Financial
C Risk bearing
D Technical

Answer 9

C

Question 10

Sole proprietors and partnerships play an important role in Pakistan. They can often be regarded as a feature of perfect competition, especially sole proprietors

What are two key features of a sole proprietor?

Answer 10

Unlimited liability
Only one owner
Owner makes all of the decisions

Question 11

Explain why a business might wish to change from a partnership to a private limited company.

Answer 11

• it will get investors and shareholders
• more money to spend on the business
• limited liability, owner is not accountable for debt when a company goes bankrupt

Question 12

Discuss whether perfect competition is always preferred to monopoly.

Answer 12

• price will tend to be lower then in monopoly
• output will tend to be higher than in monopoly
• normal profits only made in the long-run
• profits can be used to finance research and development
• large size can lead to economies of scale and lower cost and prices

Question 13

Many businesses in developed economies , such as supermarkets , are companies

a ) Identify two differences between a private limited company and a public limited company .

Answer 13

• Public companies can trade their shares on stock exchange

- Public companies have to make their accounts public

Question 14

Many businesses in developed economies , such as supermarkets , are companies .

b) Analyse the economies of scale available to companies, such as supermarkets.

Answer 14

• buying
• risk bearing, sells different types of products
• technical, self service tills
• financial, loans from banks are at lower interest rates
• able to finance expansion

Question 15

Discuss whether all small firms will eventually become large firms.

Answer 15

• firms become a company so are able to finance expansion
• desire to exploit economies of scale
• desire to reduce competition in the market by increasing market share by integration
• may be more flexible/ better able to satisfy personal preference of customers
• owner may be reluctant to expand
• small firms can combine to benefit from economies of scale