9708A. 14 November

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?

AContestability of the marketExpensive new technology
BCustomers valuing personal serviceNew government regulations on its business
CLow barriers to entering its industryManagerial diseconomies of scale
DSelling a homogenous productNew 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?

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.


%d bloggers like this: