1. A bus company provides transportation services. Which items are factors of production of a bus company? 8.

8. Which of the following would lower the average labour productivity of an economy?
(1) the seats on the bus (2) passengers (3) bus drivers (4) diesel oil A. The number of years of free education is extended. B. The legal retirement age is raised.
A. (1) and (3) only B. (2) and (4) only C. (1), (3) and (4) only D. (2), (3) and (4) only C. The government cuts its subsidy on on-the-job training. D. Legislation on standard working hours.

2. Which of the following is an example of ‘land’ in economics? 9. Which may be the reason for the difference in labour productivity between town A and town B?
A. rainwater in a desert B. water in a swimming pool
Town A Town B
C. oxygen provided on an airplane in emergencies D. red pandas living in Ocean Park Hong Kong
Output (units) 1,500 2,000
Number of workers 30 40
3. In economics, _____ is classified as capital, because _____ .
Number of working hours per
A. oil beneath the sea … its supply is limited 8 12
worker per day
B. thin air in Tibet … people prefer to breathe more air
C. soil with chemical fertiliser … it helps increase the productivity of farmers A. Town A adopts time rate while town B adopts piece rate to pay their workers.
D. endangered species of sharks living in an aquarium … they are raised by humans B. Town B’s working environment is better.
C. Fewer capital goods are used in town A.
4. Which of the following is the difference between land and capital? D. Workers in town B are less skilled.
A. No cost is involved in using land while cost is involved in using capital.
B. Capital can be used for production while land cannot. 10. The occupational mobility of labour will decrease if
C. Land is a kind of free good while capital is a kind of economic good. A. the government puts more resources into retraining program.
D. The supply of capital can be increased by human effort while the supply of land cannot. B. the government cuts transport subsidies to eligible people.
C. some professional bodies relax licensing requirements.
5. Which of the following would raise the labour supply of an economy? D. division of labour is more widely practised.
A. The granting of paternity leave benefits is extended from the public sector to the private sector.
B. More firms provide on-the-job training for their employees. 11. The government launches the Work Incentive Transport Subsidy Scheme to help all eligible employees in
C. The government raises the legal retirement age of civil servants. Hong Kong meet part of their commuting expenses to and from work.
D. Division of labour is more widely practised in the economy. This subsidy scheme would _____ the _____ of those employees.
A. increase … occupational mobility B. reduce … occupational mobility
6. A country is facing the problem of labour shortage. Which measures would help ease the problem? C. increase … geographical mobility D. reduce … geographical mobility
(1) encouraging housewives and househusbands to enter the labour market
(2) relaxing the restriction on admitting overseas talents 12. When _____ , the _____ mobility of labour will increase.
(3) extending free education to tertiary education A. the public transportation system becomes more crowded … geographical
(4) cutting the amount of unemployment benefits B. there are more job opportunities in the nearby regions … geographical
A. (1), (2) and (3) B. (1), (2) and (4) C. (1), (3) and (4) D. (2), (3) and (4) C. the government restricts its immigration policy … occupational
D. more labour unions are set up … occupational
7. Based on the above information, labour supply ___and average labour productivity_____.

Year 1 Year 2 13. Suppose the government provided subsidies for universities to offer more degree programmes for secondary
A. rose … rose school graduates. It would result in
Number of workers 80 90
B. rose … fell A. an increase in labour supply. B. an increase in average labour productivity.
Average number of working
9 7.5 C. fell … rose C. a reduction in the geographical mobility of labour. D. reduction in occupational mobility of labour.
hours per worker
D. fell … fell
Average output per worker (units) 162 145
14. Refer to the following recruitment advertisements.
 18. Which of the following descriptions about entrepreneurship is/are CORRECT?
Company A Company B (1) The return on entrepreneurship is not certain.
Secretary Secretary (2) An entrepreneur has a higher occupational mobility than labour.
(3) If someone needs to make important decisions for the company, he must be an entrepreneur.
Working hours: Working hours: A. (1) only B. (2) only C. (1) and (3) only D. (2) and (3) only
Monday to Friday, Monday to Friday,
9:00 a.m. to 5:00 p.m. 9:00 a.m. to 5:00 p.m. 19. Dr. Chan is a professor of a university. In economics, he provides the service of ____ and he engages in ___ .
Wages: $10,000 per Wages: $5,000 per month and A. labour … secondary production B. labour … tertiary production
month $10 per document C. entrepreneurship … secondary production D. entrepreneurship … tertiary production
Which of the following statements about company A and company B is CORRECT?
A. The secretary of company A earns a higher income. 20. Which of the following about the factors of production in Hong Kong is CORRECT?
B. Company A’s cost of monitoring output quality is lower. A. Hong Kong lacks natural resources. B. Hong Kong has high quality human resources.
C. Company B’s secretary has less incentive to work hard. C. Hong Kong has well-developed infrastructure and transportation networks. D. All of the above.
D. Company B’s cost of supervising its secretary is higher.
1. ‘As land is a gift of nature, it is a free good.’ Do you agree with this statement? Explain. (3 marks)
15. Suppose the pay of property agents in a company changes from $7,000 per month plus commission to $20,000
per month. Which of the following will most likely be a result of this change? 2. (a) Define occupational mobility and geographical mobility. (4 marks)
A. The income of the property agents will increase. (b) Suppose the restrictions on Mainland workers coming to work in Hong Kong under the Supplementary
B. Property agents’ incentives to work will decrease. Labour Scheme (補充勞工計劃) were tightened. Explain how this would affect the occupational mobility and
C. The cost of monitoring the property agents’ performance will decrease. the geographical mobility of Mainland workers. (4 marks)
D. The cost of calculating wage payment will increase.
3. Refer to the following data of firm A and firm B. Both firms are in the same industry.
16. Mr. Ho is the owner of a shoe shop. Under the previous wage payment scheme, he found that the salespeople Firm A Firm B
were lazy and their service quality was poor. After the adoption of the new wage payment system, the sales Output (units) 225,000 243,000
volume of shoes has increased and the service quality has improved. Number of workers 30 18

Number of working hours per worker 150 300

This improvement could be due to the fact that the previous wage payment scheme was a _____ scheme and
the present one is a _____ scheme. (a) Explain whether firm A has a larger labour supply than firm B. (3 marks)
A. piece rate … time rate B. piece rate … profit-sharing (b) Explain whether firm A has higher average labour productivity than firm B. (3 marks)
C. basic salary plus commission … piece rate D. time rate … profit-sharing (c) Suggest TWO reasons to explain difference in average labour productivity between two firms. (4 marks)

17. An employer has changed the method of payment system from system A to system B and observed the 4. In a school, different teachers are responsible for teaching different subjects.
following results: System A is probably a _____ scheme and system B is probably a _____ scheme. (a) What economic principle is illustrated in the above case? Suggest TWO reasons why the above

System A System B arrangement can increase labour productivity. (3 marks)

(b) Which type of factor of production do teachers belong to? Explain. (2 marks)
Output per worker per day (units) 320 500
(c) Which wage payment method is usually used to pay teachers? Explain ONE advantage of using this
Proportion of output with poor quality 0.8% 1.2%
wage payment method to schools and to teachers respectively. (5 marks)
A. time rate … piece rate B. time rate … profit-sharing (d) Suppose the wages of teachers increase. How will this affect the occupational mobility of teachers?
C. piece rate … time rate D. basic salary plus commission … time rate Explain. (3 marks)
1. When a competitive firm’s marginal revenue is smaller than its marginal cost, the firm’s B. the total cost is $48 when the firm maximizes its profit.
(1) profit-maximising output level is higher than the existing output level. C. the profit-maximising output level of the firm is 6 units.
(2) profit is not maximised. D. the maximum profit the firm can make is $30.
(3) total revenue is smaller than its total cost.
A. (2) only B. (1) and (2) only C. (1) and (3) only D. (1), (2) and (3) 7. The table shows the total cost of a firm in a perfectly competitive market. Suppose the fixed cost i is $20.
Output (units) 2 3 4 5 6
2. At the profit-maximising output level of a perfectly competitive firm, Total cost ($) 30 41 53 66 80
A. average revenue is equal to average cost. B. average revenue is equal to average variable cost. Suppose the marginal cost for each unit of output is increased by $1. As a result, the profit maximising output
C. the total revenue is higher than the total cost. D. the market price is equal to the marginal cost. of the firm _____ while the total revenue of the firm _____ .
A. increases … decreases B. increases … may increase, decrease or remain unchanged
Refer to the table below and answer Questions 3 and 4. C. decreases … decreases D. decreases … may increase, decrease or remain unchanged
Output (units) Total cost ($) Total revenue ($)
1 18 20 8. The following table shows the average cost of a profit-maximising firm in a perfectly competitive market.
2 32 40 Suppose the firm has a fixed cost of $16.
3 52 60 Output (units) 2 3 4 5 6
4 76 80 Average cost ($) 20 22 24 26 28
3. With reference to the table, using marginal analysis, the profit-maximising output level of this price taker is . Which of the following statements is CORRECT?
A. 1 unit B. 2 units C. 3 units D. 4 units A. If the market price is $24, the output is 2 units. B. If the market price is $26, the profit is $12.
C. The profit-maximising output of the firm is 5 units. D. The firm suffers from diseconomies of scale.
4. The profit of the firm at the profit-maximising output is _____ .
A. $2 B. $4 C. $8 D. $16 9. The supply schedule of a competitive firm can be derived from its marginal cost schedule because
A. marginal revenue equals marginal cost at the profit-maximising output level.
5. Refer to the table below, which shows the cost output relationship of a firm. B. given the quantity supplied of the firm, we can find the price of product from its marginal cost schedule.
Output (units) Average revenue ($) Average cost ($) C. the quantity supplied is positively related to the firm’s marginal cost of producing its product.
1 12 10 D. given the price of its product, we can find its quantity supplied from its marginal cost schedule.
2 12 11
3 12 12
4 12 13
5 12 14

Suppose the firm is a price taker. What are the profit-maximising output and the corresponding profit?
A. 2 units and $2 B. 2 units and $3 C. 3 units and $2 D. 3 units and $3

6. The following table shows the costs of a price taking firm.

Output (units) 4 5 6 7 8
Marginal cost ($) 9 11 13 15 17
Average variable cost ($) 6 7 8 9 10
Fixed cost ($) 5 5 5 5 5
If the product price is $13,
A. the average variable cost is $9 when the firm maximises its profit.
10. Benny is the only shopkeeper at a stationery shop. He often gives discounts to customers without the 1. Director of Bank X: ‘We should acquire another bank to improve our
permission of the shop owner. It is likely that competitiveness.’
A. Benny has personal objectives when working at the stationery shop. Chairman of Bank X: ‘I suggest acquiring a watch manufacturer instead.’
B. the shop owner wants to fulfill corporate social responsibility. (a) Identify types of integration suggested by the director and chairman of Bank X respectively. (2 marks)
C. the shop’s objective is to maximise market share. (b) If you were a shareholder of Bank X, whose suggestion would you prefer? Explain TWO possible
D. the shop’s objective is to maximise sales revenue. advantages to the company to support your choice. (4 marks)

11. ‘Hong Kong Motor Bus is dedicated to contributing to environmental protection. Each new bus is equipped 2. The table below shows the cost schedule of a competitive firm. There is a fixed cost of $5.
with the most environmentally-friendly engine…’ said the Executive Director of the Hong Kong Motor Bus. Output (units) Total cost ($) Marginal cost ($)
This statement indicates one of the objectives of the bus company is _____ . 1 25
A. profit maximization B. survival C. fulfilling social responsibilities D. growth 2 50
3 80
12. A chain sportswear retailer acquired a sportswear manufacturer. This is an example of an _____ expansion. 4 115
A. internal forward B. internal backward C. external forward D. external backward 5 155
(a) Complete the table above. (1 mark)
13. Which of the following are examples of a conglomerate expansion? (b) Suppose market price of output is $30. Find the firm’s profit-maximising output level and profit. (2)
(1) a travel agency opening a cosmetic shop (2) an international school opening a kindergarten section (c) How will the profit-maximising output level and the corresponding profit of the firm change in the
(3) a model agency opening a bakery (4) a bus company launching a new cross-border route following situations? Explain your answer.
A. (1) and (3) only B. (1) and (4) only C. (2) and (3) only D. (2) and (4) only (i) The fixed cost increases to $10. (2 marks)
(ii) The market price decreases to $25. (2 marks)
14. An air conditioner manufacturer has expanded its business as follows:
3. The following table shows the marginal cost schedule of a toy car manufacturer. Suppose the market price of a
toy car it produces is $200. There is a fixed cost of $80.
Output (units) 1 2 3 4 5
To the air conditioner manufacturer, the types of expansion shown by X and Y are _____ expansion and _____ Marginal cost ($) 165 170 180 200 230
expansion respectively. (a) What are the profit-maximising output level and its corresponding profit? (2 marks)
A. backward … conglomerate B. lateral … conglomerate After the above toy car manufacturer acquired another toy car manufacturer, the marginal cost for every unit of toy
C. backward … forward D. lateral … forward car decreased by $40 and the fixed cost decreased by $5. Meanwhile, the market price decreased by $10.
(b) Construct the new marginal cost schedule of the toy car manufacturer. (1 mark)
15. A Chinese restaurant expands its business by opening a fast food shop. This enables the Chinese restaurant to (c) What are the new profit-maximising output level and its corresponding profit? (2 marks)
A. reduce the number of competitors. B. enjoy a higher profit. (d) (i) Explain which type of integration the above acquisition was. (2 marks)
C. spread the risk of its business. D. have a stable supply of inputs. (ii) Explain TWO possible reasons why such integration would reduce production costs. (4 marks)

16. A European mobile phone manufacturer acquires a Chinese mobile phone manufacturer. Which of the 4. Recently, a chain coffee shop has acquired a toy store.
following is the LEAST likely motive? (a) What type of integration is involved in this case? Explain TWO advantages of this integration to the
A. to improve its corporate image B. to enjoy economies of scale chain coffee shop. (5 marks)
C. to increase its market share D. to diversify risk (b) If the chain coffee shop wants to ensure a reliable supply of input through internal expansion, which type
of expansion should it adopt? Suggest ONE example and explain your answer. (2 marks)
(c) Most members of staff of the chain coffee shop are paid on an hourly basis. Explain TWO advantages of
adopting this wage payment method to the employer. (4 marks)