S4 Economics Past Paper Name: ______________ ( ) Class: _______

Chapter 11 – Production in long run and short run

Section A : MC
1. The following table shows the cost-output relationship of a firm. (13/3)

Outputs (units) 0 1 2 3 4 5
Total cost ($) 10 28 42 52 60 72

Based on the above table, we can conclude that

A. the firm enjoys the benefits of economies of scale.
B. the firm’s optimal scale of production is 5 units of outputs.
C. the average variable cost is increasing.
D. the total fixed cost is $10.

2.
Machines (units) Labour (units) Average Product (units)
2 3 30
2 4 40
2 5 50
2 6 55

The above table shows a situation in which . (13/4)

A. short run … the law of diminishing returns does not apply
B. short run … the law of diminishing returns applies
C. long run … economies of scale exists
D. long run … diseconomies of scale exists

3. In order to increase the number of nurses for expanding medical services, the government has allocated more
resources to expand the nursing programme in universities. In this case, private hospitals will (13/5)
A. enjoy internal economies of scale.
B. suffer internal diseconomies of scale.
C. enjoy external economies of scale.
D. suffer external diseconomies of scale.

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4. The following table shows a production plan of a firm which employs two factors only, namely labour and
machinery.(14/5)
Labour (unit) Machinery (unit) Total product (unit)
1 4 100
2 4 120
3 4 150
4 4 170
5 4 165
The marginal product of labour will start to diminish when the _ _ unit of labour is put to work.
A. second
B. third
C. fourth
D. fifth

5. The table below shows the total product of Firm A, which employs only capital and labour in production. (15/9)
Labour (units) Capital (units) Total Product (units)
12 2 110
12 3 130
12 4 160
12 5 X
Which of the following statements about Firm A is correct?
A. If the above data illustrate the law of diminishing marginal returns, the value of X can be equal to 180.
B. If the above data illustrate the law of diminishing marginal returns, the value of X can be equal to 190.
C. If the above data illustrate the law of diminishing marginal returns, the value of X can be larger than 200.
D. The law of diminishing marginal returns does not apply to Firm A because capital is not a fixed factor.

6. A school is a production unit which provides educational services. The following are people and objects that are
usually found at a school: (16/7)
(1) the school building
(2) teachers
(3) students
(4) private cars owned by teachers
(5) sanitisers (洗手液) in the toilets

In the long run, which of the above items are variable factors of production of the school?
A. (1) and (5) only
B. (1), (2) and (5) only
C. (2), (3) and (4) only
D. (1), (2), (3), (4) and (5)

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7. An art centre extends its business hours for one hour in order to offer more painting classes. Which of the
following are variable costs involved in the extra hour of operation? (17/10)
(1) salary of the accountant
(2) electricity fee
(3) expense on paints
(4) rental payment
A. (1) and (4) only
B. (2) and (3) only
C. (1), (2) and (4) only
D. (1), (2), (3) and (4)

8. The following table shows the input-output relationship of a firm. The only inputs required are capital and labour.
(18/10)
Capital (units) Labour (units) Marginal product of labour (units)
2 1 5
2 2 7
2 3 9
2 4 8
2 5 6
The average product of labour is at the highest when the quantity of labour is _____ units.
A. 2
B. 3
C. 4
D. 5

9. Which of the following statements about economies of scale is correct? (18/12)

A. It could be a source of monopoly power.
B. It exists when the average fixed cost is falling.
C. Only large firms enjoy economies of scale.
D. It is the result of the law of diminishing marginal returns.

10. The following table shows the production data of a firm. The only inputs required are capital and labour. (19/5)
Capital (units) Labour (units) Total product (units) Total cost of production ($)
2 2 10 100
3 3 30 270
4 4 45 360
5 5 55 385
Based on the above table, we can conclude that
A. the law of diminishing returns applies to the firm.
B. the total fixed cost is $100.
C. the optimal scale is 45 units.
D. the firm enjoys economies of scale.

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11. (20/7)
Tai On Building (太安樓) in eastern Hong Kong Island is well-known as a 'foodie paradise'. A
variety of street snacks such as cart noodles, egg waffles, dumplings and mango mochi are sold by
numerous small vendors. Customers from different districts fill their stomachs at Tai On Building.
Based on the above information, street snack vendors at Tai On Building can ________.
A. enjoy internal economies of scale
B. enjoy external economies of scale
C. suffer internal diseconomies of scale
D. suffer external diseconomies of scale

12. The following table shows the production plan of a firm which employs two factors only, namely labour and
machinery. (20/8)
Machinery (units) Labour (units) Average product of labour (units)
4 1 20
4 2 21
4 3 22
4 4 X
If the above data illustrate the law of diminishing marginal returns, the value of X ________.
A can be 23
B. can be smaller than 22
C. must be larger than 22
D. must be smaller than 22

13. Because of the outbreak of COVID-19, the government of a country announced a temporary ban of dine-in
services in restaurants. Which of the following statements about restaurants under the temporary ban is
correct? (21/10)
A. If the expected sales revenue generated from takeaway food exceeds the variable cost of running a
restaurant, the restaurant will continue to operate.
B. With the extremely high cost of breaking the rental contract, the fixed rental will affect whether the
owners continue to operate their restaurant.
C. A decrease in prices of takeaway food will necessarily decrease the sales revenue of the restaurants.
D. Unpopular restaurants will close down before popular ones.

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14. The following table shows the production plan of a firm which employs two factors only, namely labour and
machinery. (21/11)
Labour (units) Machinery (units) Total output (units)
1 2 10
2 2 25
3 2 45
4 2 Q1
5 2 Q2

Suppose the above data illustrates the law of diminishing marginal returns. Which of the following figures are
consistent with the law?

(1) Q1 = 60; Q2 = 70
(2) Q1 = 40; Q2 = 30
(3) Q1 = 65; Q2 = 85

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

15. The following table shows the input, output and cost relationships of a firm. The only inputs required for
production are labour and capital. (22/7)
Labour (units) Capital (units) Total output (units) Total cost of production
1 1 20 $150
2 1 50 $200
3 1 70 $250
4 1 80 $300

Based on the above table, we can conclude that

A. the firm enjoys economies of scale.

B. the optimal scale of production is 70 units.
C. the average product of labour is at the highest when the quantity of labour is 2 units.
D. the law of diminishing marginal returns does not apply to the firm.

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Section B : Short Questions
1. The table below shows the input-output relationship of a firm. (12/2)
Workers ( Units) Machine ( Units) Total output ( Units)
10 1 10
15 2 23
20 3 42
25 4 62
30 5 80
State the law of diminishing marginal returns and explain whether the above data illustrate the law. (5 marks)

2. Ah Wing runs a store selling mobile phone accessories in Mong Kok. (14/2)
(b) Give ONE example of variable cost incurred in Ah Wing's business. Explain your answer. (2 marks)

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3. Many electronic product retailers are located in Mong Kok. (15/2b)
(b) Suggest TWO reasons why an electronic product retailer in Mong Kok may enjoy external economies of scale.
(4 marks)

4. Sure-Star Education Group is a tutorial centre for secondary school students. The Group can issue shares and bonds
to the general public to raise capital. (16/2)
(c) The average cost of providing the services decreases when the Group operates more tutorial classes in different
districts. Give THREE reasons to explain why its average cost decreases. (3 marks)

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5. The table below shows the input-output relationship of a firm. (16/3)
Machine (units) Labour (units) Average output of labour (units)
2 1 10
2 2 12
2 3 14
2 4 14
2 5 13
State the law of diminishing marginal returns and explain whether the above data illustrate the law. (6 marks)

6. Shenzhen has become China's ‘Silicon Valley’. The headquarters of many high technology firms such as Tencent
(騰訊), Huawei (華為) and BYD (比亞迪) are located there. Explain TWO external economies of scale high
technology firms may enjoy in Shenzhen. (4 marks) (18/3)

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7. Wong's family and Chan's family live next door to each other. State ONE economic concept involved in each of
following arrangements and explain why the arrangement is beneficial to both families. (19/5)
(a) On Christmas Eve, the two families buy food ingredients and cook together instead of buying and cooking
separately. (3 marks)

8. A chain restaurant providing Chinese cuisine set up a cake shop. (20/2)

(c) After the opting of 10 more restaurants, the firm found that its average cost decreased. State TWO possible
reasons for this. (2 marks)

9. The following is he advertisement of an online food delivery firm for recruiting riders (21/1)
(c) After employing more riders, the firm found that its system was overloaded and the marginal product of riders
dropped. State the law that explains this phenomenon and briefly explain why such law can be applied in this
case. (5 marks)

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10. Mary was the major shareholder of a private limited company which operated a restaurant chain. (22/1b)
(b) After opening some new restaurants, Mary found that the average cost of production of her company had
increased. Explain the change in average cost with ONE reason. (2 marks)

End of Past Paper

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Economics Past Paper (Answer Key)
Chapter 11 – Production in long run and short run

Section A: MC
1 2 3 4 5 6 7 8 9 10
D B C C A B B C A A
11 12 13 14 15 16 17 18 19 20
B B A C C

Section B: Short Questions

1. (12/2)
The law states that (holding technology constant,) when more units of a variable factor are added
successively to a given quantity of fixed factors, the marginal product of this factor will eventually
diminish. (3)
No, because (1)
All factors are variable. (1)

2. (14/2b)

3. (15/2b)
(b)
Reasons:
–reduce cost of marketing and promotion
– reduce transportation cost for suppliers
–more related businesses available such as accessories and repair
–any other relevant point
[Mark the FIRST TWO points only.] @2max: 4

4. (16/2c)

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5. (16/3)

6. (18/3)

7. (19/5)

8. (20/2c)

9. (21/1)

10. (22/1)

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