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Fundamentals of Business Economics Questions and Answers

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Question 1

A railway franchise in north-eastern Messu Potami has recently changed hands, and is now being operated by the company IstClass. However, IstClass already operate the railway franchise in northwestern Messu

Potami.

Which of the following courses of action would be most appropriate for the government of Messu Potami to take?

Select ALL that apply.

Options:

Establish a regulatory body to prevent a regional monopoly

Rerun the franchise bidding process if it found that IstClass are imposing additional price rises due to the regional monopoly

Allow the regional monopoly to exist, increasing fare prices for passengers on trains in both north-western and north-eastern Messu Potami

Impose a uniform sales tax on all railway tickets which would equalise prices across the country

Immediately nationalise the railway network, ending all private franchises and thus any regional monopolies

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Question 2

A wireless phone manufacturer currently sells 2,000 units per quarter at a price of $400 The estimated price elasticity of demand is -2.5.

The manufacturer is considering an increase in the price to $440

What will this raise (+) or reduce (-) total revenue by? Give your answer in whole numbers.

Options:

Question 3

The Competition and Markets Authority is a regulatory body in the UK. In 2017, the CMA found the proposed merger of Heineken and Punch Pubs in breach of its competition laws. Heineken and Punch Pubs have agreed

to divest in pubs in areas where they are the two dominant pub companies.

Which of the following are ways in which consumers might directly benefit from this decision?

Select ALL that apply.

Options:

Heineken/Punch Pubs will not be able to charge excessive prices for alcoholic beverages served at their pubs

There will be a greater variety of pubs for consumers to choose from in certain areas

Heineken will divest in a certain number of pubs where the merger would have created monopolies

The companies' divestment of pubs in certain areas could lead to the closure of the majority of pubs in said area

The CMA will use this decision as a precedent for others in the future

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