Question 1

In each of the following possible circumstances, decide whether the effect will be to:
-Firms engage in extensive advertising.

Accepted Answer

A)  reduce the size of monopoly profits. 
B)  prevent prices being considerably above the competitive level. 
C)  both 
D)  neither 
A)  reduce the size of monopoly profits. 
B)  prevent prices being considerably above the competitive level. 
C)  both 
D)  neither D

Question 2

Policies to improve worker skill levels should

Accepted Answer

A)  lower the average variable cost curves faced by firms. 
B)  raise wage costs and hence product prices. 
C)  raise the average variable cost curves faced by firms. 
D)  increase monopoly power. 
A)  lower the average variable cost curves faced by firms. 
B)  raise wage costs and hence product prices. 
C)  raise the average variable cost curves faced by firms. 
D)  increase monopoly power. A

Question 3

A country with a high labour turnover would be most likely to have larger investment in training.

Accepted Answer

A) True 
 B)False  FALSE

Question 4

What is collusive tendering?

Accepted Answer

A)  Where two or more firms agree to adopt common practices to restrict competition 
B)  Where two or more firms secretly agree on the prices they will tender for a contract, which will be above those in a competitive market 
C)  Where the manufacturer of a product insists that the product should be sold at a specified retail price 
D)  Where a firm uses the profits made in one industry to subsidise its activities in another industry 
A)  Where two or more firms agree to adopt common practices to restrict competition 
B)  Where two or more firms secretly agree on the prices they will tender for a contract, which will be above those in a competitive market 
C)  Where the manufacturer of a product insists that the product should be sold at a specified retail price 
D)  Where a firm uses the profits made in one industry to subsidise its activities in another industry

Question 5

What are vertical restraints?

Accepted Answer

A)  A supplying firm imposes restrictions on another supplying firm 
B)  Vertical mergers in a supply chain 
C)  A purchasing firm imposes restrictions on another purchasing firm 
D)  A supplying firm imposes restrictions on the purchasing firm (or vice versa) 
A)  A supplying firm imposes restrictions on another supplying firm 
B)  Vertical mergers in a supply chain 
C)  A purchasing firm imposes restrictions on another purchasing firm 
D)  A supplying firm imposes restrictions on the purchasing firm (or vice versa)

Question 6

A firm that charges all its customers the same price is probably cross- subsidising.

Accepted Answer

A) True 
 B)False

Question 7

Which of the practices below do not constitute a 'cartel agreement'?

Accepted Answer

A)  Agreements to limit production 
B)  Collusive tendering 
C)  Horizontal price fixing 
D)  Resale price maintenance 
A)  Agreements to limit production 
B)  Collusive tendering 
C)  Horizontal price fixing 
D)  Resale price maintenance

Question 8

In each of the following possible circumstances, decide whether the effect will be to:
-The firm(s) achieve substantial economies of scale.

Accepted Answer

A)  reduce the size of monopoly profits. 
B)  prevent prices being considerably above the competitive level. 
C)  both 
D)  neither 
A)  reduce the size of monopoly profits. 
B)  prevent prices being considerably above the competitive level. 
C)  both 
D)  neither

Question 9

In each of the following possible circumstances, decide whether the effect will be to:
-The firms experience managerial diseconomies of scale.

Accepted Answer

A)  reduce the size of monopoly profits. 
B)  prevent prices being considerably above the competitive level. 
C)  both 
D)  neither 
A)  reduce the size of monopoly profits. 
B)  prevent prices being considerably above the competitive level. 
C)  both 
D)  neither

Question 10

At which of the problems is each of the policies targeted?
-Resale price maintenance

Accepted Answer

A)  The government makes it illegal for manufacturers to set the price at which their products must be sold by shops. _ 
B)  The government nationalises the national electricity grid. 
C)  The government makes collusive agreements between oligopolists illegal. 
D)  The government sets up a body which can investigate any firm with a share of the market above a certain level. 
E)  Firms are prohibited from using unfair competitive practices whereby they use profits in one market to charge prices below cost in another, and thereby drive competitors out of business. _ 
F) A regulatory body has the power to limit a firm's price increases where this would result in 'excessive' supernormal profits.
G) The government passes legislation that enables an investigation of any mergers that will lead to the merged firm having more than a certain percentage share of the market. 
A)  The government makes it illegal for manufacturers to set the price at which their products must be sold by shops. _ 
B)  The government nationalises the national electricity grid. 
C)  The government makes collusive agreements between oligopolists illegal. 
D)  The government sets up a body which can investigate any firm with a share of the market above a certain level. 
E)  Firms are prohibited from using unfair competitive practices whereby they use profits in one market to charge prices below cost in another, and thereby drive competitors out of business. _ 
F) A regulatory body has the power to limit a firm's price increases where this would result in 'excessive' supernormal profits.
G) The government passes legislation that enables an investigation of any mergers that will lead to the merged firm having more than a certain percentage share of the market.

Question 11

Imagine that a firm with monopoly power is suspected of acting against the public interest. Arrange events
(a-h) in the correct sequence of how this case would be pursued.
a) The President of the Board of Trade refers the case to the MMC. ________
b) The OFT makes a preliminary report to the President of the Board of Trade. ________
c) The President of the Board of Trade takes action against the firm (seeking prior parliamentary approval if necessary). ________
d) The MMC seeks voluntary compliance with its recommendations. ________
e) The OFT makes a preliminary investigation. ________
f) The OFT seeks initial voluntary compliance with its recommendations. ________
g) The MMC publishes its report. ________
h) The MMC carries out an investigation into the case. ________

Accepted Answer

(e), (f),

Question 12

A market- sharing agreement is when firms divide up the market between them and agree not to compete in each other's part of the market.

Accepted Answer

A) True 
 B)False

Question 13

What are the three main targets for competition policy?

Accepted Answer

1) The abuse of the existing p

Question 14

Patents discourage firms from innovating.

Accepted Answer

A) True 
 B)False

Question 15

Match the anti- competitive practices to the definitions.
-Selective distribution

Accepted Answer

A)  A firm is only prepared to supply certain selected retail outlets. 
B)  A vertically integrated firm controls the supply of an input and charges competitors a high price for that input so that they cannot compete with it in selling the finished good. 
C)  Firms divide up the market between them, agreeing not to compete in each other's part of the market. 
D)  Firms bidding for a contract e.g. to supply building materials for a new office development) all agree beforehand to bid high prices. 
E)  A firm sells the same good at a different price relative to costs) in different sectors of the market. 
F) A firm is only prepared to hire out equipment and not sell it outright.
G) A firm controlling the supply of one product insists that its customers also buy a second product from it rather than from its rivals.  
H) A firm sells a product below cost in order to drive competitors from the industry.
I) Firms get together to agree on a common price. 
A)  A firm is only prepared to supply certain selected retail outlets. 
B)  A vertically integrated firm controls the supply of an input and charges competitors a high price for that input so that they cannot compete with it in selling the finished good. 
C)  Firms divide up the market between them, agreeing not to compete in each other's part of the market. 
D)  Firms bidding for a contract e.g. to supply building materials for a new office development) all agree beforehand to bid high prices. 
E)  A firm sells the same good at a different price relative to costs) in different sectors of the market. 
F) A firm is only prepared to hire out equipment and not sell it outright.
G) A firm controlling the supply of one product insists that its customers also buy a second product from it rather than from its rivals.  
H) A firm sells a product below cost in order to drive competitors from the industry.
I) Firms get together to agree on a common price.

Question 16

At which of the problems is each of the policies targeted?
-Cross- subsidisation

Accepted Answer

A)  The government makes it illegal for manufacturers to set the price at which their products must be sold by shops. _ 
B)  The government nationalises the national electricity grid. 
C)  The government makes collusive agreements between oligopolists illegal. 
D)  The government sets up a body which can investigate any firm with a share of the market above a certain level. 
E)  Firms are prohibited from using unfair competitive practices whereby they use profits in one market to charge prices below cost in another, and thereby drive competitors out of business. _ 
F) A regulatory body has the power to limit a firm's price increases where this would result in 'excessive' supernormal profits.
G) The government passes legislation that enables an investigation of any mergers that will lead to the merged firm having more than a certain percentage share of the market. 
A)  The government makes it illegal for manufacturers to set the price at which their products must be sold by shops. _ 
B)  The government nationalises the national electricity grid. 
C)  The government makes collusive agreements between oligopolists illegal. 
D)  The government sets up a body which can investigate any firm with a share of the market above a certain level. 
E)  Firms are prohibited from using unfair competitive practices whereby they use profits in one market to charge prices below cost in another, and thereby drive competitors out of business. _ 
F) A regulatory body has the power to limit a firm's price increases where this would result in 'excessive' supernormal profits.
G) The government passes legislation that enables an investigation of any mergers that will lead to the merged firm having more than a certain percentage share of the market.

Question 17

Monopoly policy, under both EU and UK legislation, is only directed towards monopolies.

Accepted Answer

A) True 
 B)False

Question 18

Match the anti- competitive practices to the definitions.
-Rental- only contracts

Accepted Answer

A)  A firm is only prepared to supply certain selected retail outlets. 
B)  A vertically integrated firm controls the supply of an input and charges competitors a high price for that input so that they cannot compete with it in selling the finished good. 
C)  Firms divide up the market between them, agreeing not to compete in each other's part of the market. 
D)  Firms bidding for a contract e.g. to supply building materials for a new office development) all agree beforehand to bid high prices. 
E)  A firm sells the same good at a different price relative to costs) in different sectors of the market. 
F) A firm is only prepared to hire out equipment and not sell it outright.
G) A firm controlling the supply of one product insists that its customers also buy a second product from it rather than from its rivals.  
H) A firm sells a product below cost in order to drive competitors from the industry.
I) Firms get together to agree on a common price. 
A)  A firm is only prepared to supply certain selected retail outlets. 
B)  A vertically integrated firm controls the supply of an input and charges competitors a high price for that input so that they cannot compete with it in selling the finished good. 
C)  Firms divide up the market between them, agreeing not to compete in each other's part of the market. 
D)  Firms bidding for a contract e.g. to supply building materials for a new office development) all agree beforehand to bid high prices. 
E)  A firm sells the same good at a different price relative to costs) in different sectors of the market. 
F) A firm is only prepared to hire out equipment and not sell it outright.
G) A firm controlling the supply of one product insists that its customers also buy a second product from it rather than from its rivals.  
H) A firm sells a product below cost in order to drive competitors from the industry.
I) Firms get together to agree on a common price.

Question 19

Policies to improve worker skill levels are called

Accepted Answer

A)  regulatory policies. 
B)  supply- side policies. 
C)  physical capital policies. 
D)  demand- side policies. 
A)  regulatory policies. 
B)  supply- side policies. 
C)  physical capital policies. 
D)  demand- side policies.

Question 20

Under UK regulation, regulators are only concerned with pricing decisions.

Accepted Answer

A) True 
 B)False

Exam 21: Government and the Firm

In each of the following possible circumstances, decide whether the effect will be to: -Firms engage in extensive advertising.

Policies to improve worker skill levels should

A country with a high labour turnover would be most likely to have larger investment in training.

What is collusive tendering?

What are vertical restraints?

A firm that charges all its customers the same price is probably cross- subsidising.

Which of the practices below do not constitute a 'cartel agreement'?

In each of the following possible circumstances, decide whether the effect will be to: -The firm(s) achieve substantial economies of scale.

In each of the following possible circumstances, decide whether the effect will be to: -The firms experience managerial diseconomies of scale.

At which of the problems is each of the policies targeted? -Resale price maintenance

A market- sharing agreement is when firms divide up the market between them and agree not to compete in each other's part of the market.

What are the three main targets for competition policy?

Patents discourage firms from innovating.

Match the anti- competitive practices to the definitions. -Selective distribution

At which of the problems is each of the policies targeted? -Cross- subsidisation

Monopoly policy, under both EU and UK legislation, is only directed towards monopolies.

Match the anti- competitive practices to the definitions. -Rental- only contracts

Policies to improve worker skill levels are called

Under UK regulation, regulators are only concerned with pricing decisions.

The Business Environment and Business Economics

Economics and the World of Business

Business Organisations

The Working of Competitive Markets

Business in a Market Environment

Demand and the Consumer

Demand and the Firm

Products, Marketing and Advertising

Costs of Production

Revenue and Profit

Profit Maximisation Under Perfect Competition and Monopoly

Profit Maximisation Under Imperfect Competition

An Introduction to Business Strategy

Alternative Theories of the Firm

Growth Strategy

The Small-Firm Sector

Pricing Strategy

Labour Markets, Wages and Industrial Relations

Investment and the Employment of Capital

Reasons for Government Intervention in the Market

Government and the Market

Globalisation and Multinational Business

International Trade

Trading Blocs

The Macroeconomic Environment of Business

The Balance of Payments and Exchange Rates

Banking, Money and Interest Rates

Business Activity, Employment and Inflation

Demand-Side Policy

Supply-Side Policy

International Economic Policy

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