1. In the diagram, TC is a firm’s short-run total cost curve.
Which statement is correct?
A Average total cost is minimised at output OQ3.
B Average variable cost is minimised at output OQ2.
C Average variable cost is minimised at output OQ3.
D Marginal cost is minimised at output OQ1.
2. What is correct about cartels?
A They are a form of trade union restrictive practice.
B They are a type of industrial merger.
C They are often subject to government investigation.
D They establish a vertical link between firms.
3. When output increases in the short run, which statement is correct?
A Average fixed cost first falls and then, beyond some point, rises.
B Average variable cost increases as soon as the law of diminishing marginal returns begins to operate.
C The minimum point of the average total cost curve occurs at a greater level of output than the minimum point of the average variable cost curve.
D When marginal cost reaches its minimum point, average variable cost must be greater than average fixed cost.
4.The diagram shows a competitive industry facing constant marginal and average costs. In equilibrium its output is OQC and its price is OPC. A series of horizontal mergers generate economies of scale and create a monopoly in the industry. The new equilibrium output is OQM and price is OPM.
Which area represents the producer surplus after these mergers?
A W B W + X C W + X – Z D X
5. A firm that controlled over 50% of the market successfully merges with its main competitor to form one large company.
What is the most likely reason why, from the firm’s point of view, the merger will fail?
A a fall in consumer surplus
B cost of funding the merger
C economies of scale
D market dominance