O Y X 1 X 2 F H G IC 2 IC 1 good Y good X The consumer’s initial position is at point F. The consumer’s preferred final position becomes point H. What does the movement from F to G represent? A the income effect of a price fall for X B the price effect of a price change for X C the substitution effect of a price fall for X D the substitution effect of a price rise for X 6 What is one of the long-term benefits to a firm of vertical integration? A a concentration on activities in which the firm has a comparative advantage B a reduction in the total costs involved in agreeing contracts with other firms C an increase in the firm’s market share D improvements in efficiency resulting from increased use of market incentives
4 © UCLES 2016 9708/32/O/N/16 7 The organisers of a major sporting event produce official souvenir products. Cheaper unofficial souvenirs are also produced by street traders who sell them to people walking to the event. Of what is this an example? A a contestable market B perfect competition C price discrimination D price leadership 8 Which assumption is made in calculating a firm’s short-run production function? A All factors of production are fixed. B All factors of production are variable. C The state of technology is fixed. D The state of technology is variable. 9 In the diagram, TC is a firm’s short-run total cost curve. O Q 1 Q 2 Q 3 output costs TC Which statement is correct? A Average total cost is minimised at output OQ 2 . B Average variable cost is minimised at output OQ 1 . C Average variable cost is minimised at output OQ 3 . D Marginal cost is minimised at output OQ 2 .
5 © UCLES 2016 9708/32/O/N/16 [Turn over 10 The table shows the total cost of a firm. output total cost $ 0 40 1 55 2 60 3 65 4 80 What is the average variable cost of producing 4 units of output? A $10 B $15 C $20 D $40 11 Which condition must apply before a market can be regarded as perfectly contestable? A All firms in the industry are price-takers. B All firms in the industry produce an identical product. C There are a large number of firms in the industry. D There are zero costs of entry to, and exit from, the industry.
6 © UCLES 2016 9708/32/O/N/16 12 The diagram shows the average and marginal revenue curves of an oligopolistic firm. OQ is the profit-maximising output. Which curve could be the firm’s marginal cost curve? O Q output MR MR AR costs / revenue A B C D 13 What is most likely to be found when comparing the long-run equilibrium outcome in monopolistic competition with that in perfect competition? A a greater degree of excess capacity in monopolistic competition B a higher level of profit in monopolistic competition C a larger number of firms in monopolistic competition D a more price-elastic demand curve in monopolistic competition 14 Which is not a source of market failure?
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