1. A consumer demands two goods, X and Y. The indifference curve diagram shows the effect of a
change in the price of one of these goods on the consumer’s equilibrium.

Which demand curve is consistent with the diagram?

2. In many developed economies, large and small firms often exist side by side in the same
industry.
What is most likely to explain the survival of the small firms?
A They each offer a much wider range of products.
B They have a higher minimum efficient scale.
C They pay much higher wages to their staff.
D They provide a more personal level of consumer service.

3. The diagram shows short-run (SRAC) and long-run (LRAC) cost curves for a firm.

Which statement is correct?
A When each of the three SRAC curves is U-shaped it shows the existence of economies of
scale.
B When the LRAC curve is upward-sloping beyond output OQ it shows the existence of
diseconomies of scale.
C When the minimum point of SRAC2 is below that of SRAC1 it shows the existence of the law
of variable proportions.
D When the minimum point of SRAC2 is below that of SRAC3 it shows the existence of
economies of scale.

4. What is most likely to rise as a firm expands?
A energy costs per unit of output
B the cost of components
C the cost of monitoring workers
D the rate of interest paid on borrowing

5. In the long run, what is a feature of monopolistic competition, but not of perfect competition?
A a small number of buyers
B product differentiation
C the existence of abnormal profits
D the existence of barriers to entry

Answers