Category: Economics

[Revision] Various Topics in MBA Economics

Answer the following questions

What does this description imply about the assumption of profit maximization? [4%]

Suggest reasons why well-run firm avoid firing workers during a recession and re-hiring them in a boom [4%]

According to the extract which of the following are true [4%]
Inflation squeezes profits.
Firms raise prices to offset rising costs.
Firms do not raise prices for fear of losing customers to rival firms.
Firms can easily change the prices of their products.

An economics illiterate friend of yours with great technical knowledge in space exploration wishes to start a new company in her area of expertise. After reading a do-it-yourself entrepreneur manual she finds out that the basic blueprint for a company’s profitability and survival involves three elements.
(A) Find a starting niche from which the firm can expand.
(B) Produce the product at scale
(C) Create a sales-and-distribution network (3%)

Which of the following statements provides the economic rationale for which stage in the above sequence?
1. Minimisation of fixed costs of production
2. Gaining access to stock exchange finance
3. Exploitation of monopoly power to earn economic profits
4. Reduction of average cost of production
5. Securing long-run lease for the premises of the company
6. Obtaining government subsidies
7. Reduction of transaction costs
8. Minimisation of profit tax

(3) University education (3%)
(1) is the only way for people to earn an income above the median income.
(2) should be offered free of charge because it represents a basic human right.
(3) is a public good.
(4) makes people less reliant on state handouts.
(A) All of the above are correct
(B) None of the above is correct
(C) Statements (1) and (2) are correct
(D) Statements (1), (2) and (3) are correct

(4) Economists make use of the tools of Game Theory because (2%)
(1) It helps to analyse interactions between humans
(2) It makes them better in playing card games
(3) It offers a better understanding of oligopolies
(4) It is highly mathematical
(A) All of the above are true
(B) (1) and (2) are true
(C) (1) and (3) are true
(D) (3) and (4) are true

Two rival companies competing in the same market need to decide their plans for future expansion of their stores. The Table below shows the possible outcomes of their mutually interdependent actions (payoffs are profits in millions of sterling pounds) (5%)
Giga Company
Titanic Conglomerate No Change Refurbishment of existing stores Large Expansion
No Change 30, 40 25, 35 15, 24
Refurbishment of existing stores 35, 30 28, 32 18, 33
Large Expansion 12, 22 18, 20 20, 25

The Nash equilibrium:
(A) does not exist.
(B) occurs when both firms choose Refurbishment of existing stores.
(C) occurs when both firms choose Large Expansion.
(D) occurs when both firms choose No Change.

If in theory collusion is good for the members of a cartel, give at least three reasons why in practice collusion is not widespread (3%)

For the UK public investment in flood defences is easier than investing in reducing greenhouse gas emissions because (3%)
(A) The lobby of agri-business has more political clout than that of car manufacturers
(B) Flooding is a more frequent problem than heatwaves
(C) Foreigners cannot free-ride on UK flood defences
(D) Insurance companies increase house insurance premiums after floods

(8) Space tourism by billionaires: (3%)
(A) proves that intelligent life exists only on planet Earth
(B) generated positive externalities
(C) is indefensible because it illustrates economic inequality
(D) showcases the military capabilities of the USA

Petrol brings great benefit to those who buy it, but burning it also creates external costs. Consider the graph below which shows the demand for petrol, the private marginal cost of producing petrol, and the social marginal cost of producing petrol. (9%)

Suppose that buyers and producers of petrol do not consider the external marginal costs they impose on others. Determine the equilibrium quantity and price; then use the letters in the diagram to fill in the appropriate spaces in the table below

Suppose that conscientious sellers, out of the sheer goodness of their hearts, decide to incorporate external marginal costs into their production decisions. Determine the new quantity and price, then use the letters in the diagram to fill in the appropriate spaces in the table above.

Producers rarely do something out of the goodness of their hearts and are likely to consider only their private marginal costs. Compare total surplus in both cases to determine the deadweight loss of the externality when external marginal costs are not considered