1. Renowned as the culinary capital of Asia, Hong Kong boasts more than 11,000 restaurants, many of them clustered in defined food districts. Thousands of Chinese restaurants provide Cantonese and other regional Chinese food to citizens and visitors

a) Suggest and explain TWO possible factors that may contribute to economies of scale and TWO factors that may lead to diseconomies of scale in the Chinese restaurant business.

b) Staff of Chinese restaurants has to attend on-the-job training for increasing understanding of the features of the products and services provided by its restaurant. This on-job-training is always compulsory and free-of-charge. Why is this in-house training provided free of charge?

c) Explain principal-agent problem. Using the Maxim Palace, one of the largest Chinese restaurants in Hong Kong, identify and explain ONE possible principle- agent problem at two different organisational levels that it could encounter with examples. Explain how the Maxim Palace could be adversely affected by two identified principal-agent problems. Suggest and explain ONE possible solution for each of the identified problems.

2. Comment on the agreement on the statement listed below. Explain with the supporting rationales. No diagrams are required.

a) It is always profitable to decrease price when the demand of the product is elastic.

b) The number of people receiving full-time education is not affected by the prevailing interest rate.