1. Selina has an income of $100 and buys food and drink. The price of a unit of food is $2 while the
price of a unit of drink is $1.
Which combination of spending would suggest that Selina wants to save some of her income?

2. The diagram shows a profit-maximising monopolist.

What would be the change in price if this monopolist changed from profit maximisation to revenue
maximisation?
A R to S B R to T C U to S D U to T

3. The goal of firm X is to make a minimum acceptable level of profit.
What does this describe?
A profit maximisation
B profit satisficing
C revenue maximisation
D sales maximisation

4. A monopoly firm makes only normal profit in the long run.
What is most likely to explain this?
A The firm has decreasing long-run average costs.
B The firm is a public company with numerous shareholders.
C The firm is owned by a small number of financial institutions.
D The market in this industry is highly contestable.

5. The diagram shows the average fixed cost (AFC), average variable cost (AVC) and average total
cost (ATC) curves faced by three firms X, Y and Z. D_X, D_Y and D_Z are the three respective
demand curves. All three firms seek to make a profit.

Which statement is not correct?
A Firm X will choose not to produce at all.
B Firm Y is likely to operate in the long run but not in the short run.
C Firm Y is likely to operate in the short run but not in the long run.
D Firm Z will operate in both the short run and the long run.

Answers