1. When shirts are produced, fixed costs are $100 and the variable cost is $5 per shirt.
If the price is $10, which output would result in normal profit?
A 10 shirts
B 20 shirts
C 25 shirts
D 100 shirts

2. The table shows four market structures.
Which characteristics could describe the market structure shown?

	Market structure	Barriers to entry	Differentiated products
A	Monopolistic competition	Low	No
B	Monopoly	High	Yes
C	Oligopoly	Low	No
D	Perfect competition	High	Yes

3. A firm abandons its policy of horizontal expansion and switches to a policy of backward vertical
growth.
What does this suggest is most likely about the firm’s objectives?
A It now prefers revenue maximisation to cost minimisation.
B It now prefers sales maximisation to profit satisficing.
C It now prefers security of sales to profit maximisation.
D It now prefers security of supplies to growth of market share.

4. What identifies the output level required to meet the stated aim of the firm?

	Aim of firm	Produce at output where
A	Maximum efficiency	Marginal cost is at a minimum
B	Profit maximising	Marginal cost is equal to average revenue
C	Quantity of sales maximising	Average revenues is equal to average cost
D	Revenue maximising	Marginal revenue is zero

5. What makes it likely that firms will collude in setting prices for a particular product?
A a highly contestable market structure
B a small number of firms with economies of scale
C persistent shortages of the product being supplied
D the existence of patent rights possessed by firms

Answers