1. A kinked demand curve is often used when economists attempt to analyse the way in which
oligopolists operate.
What does the kinked demand curve indicate?
A Oligopolists are unable to achieve profit maximisation.
B Satisficing is the best objective for firms that operate under conditions of oligopoly.
C There are always benefits available for oligopolists if they reduce price, but not if they
increase it.
D There is a tendency towards price stability when firms operate under conditions of oligopoly.

2. Why might a firm adopt a policy of diversification?
A to achieve cost economies of scale
B to agree common prices with rivals
C to ensure greater ability to spread investment risks
D to increase productivity of labour

3. What would be likely to help a small firm to survive and what might be a threat to its survival?

	Help	Threat
A	Contestability of the market	Expensive new technology
B	Customers valuing personal service	New government regulations on its business
C	Low barriers to entering its industry	Managerial diseconomies of scale
D	Selling a homogenous product	New firms entering the market

4. The diagram shows the cost and revenue curves of a profit-maximising monopolist.

What measures the total monopoly profit made by the firm?
A JM B JK C JMOQ D JKOQ

5. The diagram shows a firm’s short-run total cost curve (TC).

Which statement is correct?
A Average total cost is minimised at output OQ₂.
B Average variable cost is minimised at output OQ₁.
C Average variable cost is minimised at output OQ₃.
D Marginal cost is minimised at output OQ₁.