9708A. 20 November

6. A Chinese firm has total fixed costs of 1000 Yuan. The firm’s average variable cost is 10 Yuan and its average total cost is 15 Yuan.
What is the firm’s output?
A 10 units B 66 units C 200 units D 5000 units

7. What is not a requirement for the law of diminishing returns to operate in the short run?
A At least one factor will be fixed in quantity.
B Average returns to a variable factor will increase then fall.
C Marginal product of a variable factor will increase then fall.
D Inputs of all of the factors will be variable.

8. The diagram shows the costs and revenues of a firm that is producing output Qe with a price Pe.

What would explain this?
A The firm is deliberately selling below cost to keep out potential entrants.
B The firm wants to maximise the volume of sales to gain economies of scale.
C The managers’ salaries are related to revenue rather than to profits.
D The managers want to have a large team working for them to increase their status.

9. What is necessary for price discrimination to be profitable in different markets?
A There must be many buyers.
B There must be markets with different price elasticities of demand.
C There must be product differentiation.
D There must be geographically separate markets.

10. The diagram shows a firm’s short-run average cost curve.

What explains the shape of the curve?
A the law of diminishing marginal utility
B the law of variable proportions
C fixed costs exceeding variable costs
D technical diseconomies


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