1. See the four statements below and select the correct option form A-D.

(i)Economies of scale lower total cost of production

(ii)Economies of scope give rise to natural monopolies

(iii)Diseconomies of scale justify the breakup of conglomerates

(iv)The benefits from vertical integration justify hostile takeovers.

A.All are correct

B.(ii) is correct

C.None is correct

D(iii) and (iv) are correct

Hint: Option B(ii) is not correct as advised by the lecturer.

2. Which of the following statements is TRUE? Provide explanation to support the correct answer.

I.In the face of a positive externality, a perfectly competitive market produces less than the socially optimal quantity of output.

II.If vaccinations make an external marginal benefit, the marginal social benefit of vaccinations will always exceed their private marginal benefit.

III.In unregulated markets, negative externalities create deadweight losses, but positive externalities do not.

IV.In the face of a negative externality, a perfectly competitive market produces more than the socially optimal quantity of output.

A.I, II and IV are correct

B.III only is correct

C.I and III are correct

D.I and IV are correct

3. Fill the missing spaces in the sentence below: The fact that market outcomes fail to achieve Pareto efficiency in the case of ______,

implies that ______.

A.externality; government regulation is necessary

B.natural monopoly; private property rights are unethical

C.public goods; government action may improve the allocation of resource

D.public goods;government must maximize income tax revenues

Hint: Option A is not correct as advised by the lecturer.