F.4 Economics Ch.

7 The Objectives and Expansion of Firms (Homework 7)

Name: Class: ( ) Group:
1. Study the following table and answer the question.
Total cost ($) Unit price ($) Number of cakes sold (units)
ABC Shop 1,000 18 120
XYZ Shop 1,450 15 160

Which of the following statements are CORRECT?

(1) Total revenue of ABC Shop is higher than that of XYZ Shop.
(2) Total revenue of ABC Shop is lower than that of XYZ Shop.
(3) ABC Shop’s profit is higher than XYZ Shop’s profit.
(4) ABC Shop’s profit is lower than XYZ Shop’s profit.

A. (1) and (3) only B. (1) and (4) only C. (2) and (3) only D. (2) and (4) only

2. In a perfectly competitive market, firms try to adjust their _______ to maximise profit.
A. total cost B. product price C. average cost D. output level

3. Study the following information about Peter’s firm.

Output (units) Total cost Total revenue
($) ($)
4 20 24
5 24 30
6 30 36
7 40 42

Currently, the output level of Peter’s firm is 5 units. If the firm increases its output by 1 unit,
the marginal revenue is _____ and the marginal cost is _____.
A. $4 ; $6 B. $6 ; $6
C. $4 ; $4 D. indeterminate … indeterminate

4. Refer to the following information about Penny’s Factory.

Output (units) Marginal revenue Marginal cost
($) ($)
11 50 30
12 50 40
13 50 50
14 50 60
Suppose Penny’s Factory is in a perfectly competitive market and its current output level is 12
units. In order to maximise the profit, Penny’s Factory should ___ the output level by ___ unit(s).
A. increase ; 1 B. increase ; 2 C. decrease ; 1 D. decrease ; 2
5. Refer to the following table.
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 No. of products sold (units) Total cost ($)
150 800
160 900
170 1,030
180 1,250
Suppose the company sold 170 units of products in this year at $15.
The total revenue is _____ and the profit is _____ in this year.
A. $2,250 ; $1,220 B. $2,550 ; $1,520
C. $2,700 ; $1,670 D. $2,700 ; $1,450

6. Read the following table.

Output (units) Total revenue ($) Total cost ($) Profit ($) Marginal cost ($)
11 220 100 120 -
12 240 110 130 10
13 Y 123 137 13
14 280 139 141 Z

According to the above information, Y and Z are equal to ______ and _____ respectively.
A. $260 ; $16 B. $260 ; $4
C. $250 ; $16 D. $250 ; $4

7. During economic downturn, some airlines introduced special discounts to attract customers
even though they were suffering serious losses. At that time, the objective of the airlines was
likely to be _____.
A. profit maximization B. fulfilling corporate social responsibility
C. survival D. improving the quality of services

8. In order to protect the environment, some farmers in Hong Kong insist on adopting the “organic
farming techniques” and try to avoid using pesticides and certain inorganic fertilisers. This
indicates that one of the objectives of these farmers is _____.
A. attaining sales growth B. maximising their market share
C. fulfilling social responsibility D. survival

9. Suppose McDonald's opens a new branch in Mongkok. This is an example of ______ and
______ expansion.
A. internal ; vertical forward B. internal ; horizontal
C. external ; horizontal D. external ; vertical forward

10. Which of the following is NOT an example of external expansion?

A. A software company builds a factory for manufacturing hard disks.
B. A software company buys a computer retailer.

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 C. A software company buys all the shares of another software company.
D. A software company acquires a hard disk manufacturing company.
11. Which of the following about integration of a firm is/are CORRECT?
(1) One of the general motives of integration is to enjoy economies of scale.
(2) Backward integration can help a firm build up a retail network to sell goods.
(3) Forward integration can ensure a reliable supply of input.
A. (1) only B. (1) and (2) only C. (2) and (3) only D. (1), (2) and (3)

12. Which of the following statements is/are CORRECT?

(1) Internal expansion and external expansion cannot occur at the same time.
(2) Firms may have negative return after integration.
(3) Lateral integration refers to a combination of firms producing totally different goods or services.
A. (1) only B. (2) only C. (2) and (3) only D. None of the above.

13. When an Internet service provider acquires a garment factory, the Internet service provider has
the advantage of _____.
A. increasing profit B. ensuring a reliable supply of input
C. diversifying risks D. enjoying economies of scale

14. Which of the following is/are the motive(s) for a mobile phone manufacturer to combine with an
MP3 player manufacturer?
(1) more efficient use of resources
(2) to ensure adequate market outlets
(3) to spread risk through diversification
(4) to reduce the number of competitors in the mobile phone manufacturing industry
A. (2) only B. (1) and (3) only C. (1), (3) and (4) only D. (1), (2), (3) and (4)

15. Which of the following is the general condition of profit maximisation for a competitive firm?
A. marginal revenue = price
B. marginal revenue = marginal cost = price
C. total revenue = total cost
D. average revenue = average cost

16. The following table shows the production costs of a price taker.
Output (units) 1 2 3 4 5
Total cost ($) 10 20 32 46 62
Average variable cost ($) 8 9 10 11 12

If the price of the good is $12, _____.

A. the total revenue of the firm is $32
B. the profit-maximising output of the firm is 4 units

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 C. the maximum profit the firm can earn is $4
D. it is not profitable for the firm to produce

17. Statement 1: “A competitive firm’s supply schedule is equal to its average cost schedule.”
Statement 2: “The marginal revenue of a competitive firm is always equal to the market price.”
Explain whether the above statements are correct.

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18. Pixar Animation Studios, a producer of computer animations, was acquired by The Walt
Disney Company, which owns a movie studio that also produces animations, in 2006.
(a) What type of integration is it? __________________________________________________
(b) Explain how the above integration fulfils the motive of using resources more efficiently.
____________________________________________________________________________
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(c) State other advantage of this integration. _________________________________________
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19. A cosmetics retail chain decided to combine with a health care products shop that was voted
“The Best Health Care Products Shop” in ten consecutive years.

(a) Explain what type of integration it was.___________________________________________

__________________________________________________________________________

(b) Explain ONE possible motive for such integration.

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20. The following table shows the cost schedule of a competitive firm.

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 Output (units) 1 2 3 4 5
Total Cost ($) 50 90 150 230 330
The price of its product is $60.
(a) Find the profit-maximising output level of the firm. _________________________________
(b) Calculate the maximum profit of the firm. _________________________________________