Ch.

6 - Production and Costs

2007
3. (a) State the law of diminishing marginal returns. (3 marks)
(b) Study the following information on a factory.

Machine (units) Labour (units) Average product (units)

1 5 40
1 6 70
1 7 90
1 8 100

Explain whether the above data illustrate the law of diminishing marginal returns. (4 marks)

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2009
3. The table below shows the input-output relationship of a firm.

Labour (units) Machine (units) Average output of labour (units)

1 2 10
2 2 12
3 2 14
4 2 16
5 2 17

State the law of diminishing marginal returns and explain whether the above data illustrate the law.
(6 marks)

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1
Ch. 6 - Production and Costs
9. In recent years, the price of textbooks has become a public concern.

(a) Textbook publishers usually print textbooks in large amount in order to reduce their average cost of
production.

Explain TWO economies of scale that a firm may enjoy when it expands its production scale.
(4 marks)

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2010
9. Ocean Park Hong Kong is undergoing a major redevelopment plan.

(a) Ocean Park will expand to double the number of its attractions. Explain TWO economies of scale
that it may enjoy after expansion. (4 marks)

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2011

4. The table below shows the input-output relationship of a firm

Labour (units) Machine (units) Total output (units)

3 3 90
4 3 160
5 3 250
6 3 330

(a) State the law of diminishing marginal returns (3 marks)

(b) Explain whether the data illustrate the law of diminishing marginal returns. (3 marks)

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2
Ch. 6 - Production and Costs
SP
3. The table below shows the input-output relationship of a firm.
Worker (Units) Machine (Units) Average output per worker (Units)
1 3 400
2 3 450
3 3 500
4 3 450
5 3 400

State the law of diminishing marginal returns and explain whether the above data illustrate the law.
(6 marks)
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9 (c) The schedule below shows the marginal costs of a firm which produces electronic watches before
and after the technological improvement.

Marginal cost ($) before the Marginal cost ($) after the
Output (Units)
technological improvement technological improvement
500 70 60
600 80 70
700 90 80
800 100 90
900 110 100

(i) Is marginal cost a fixed cost or a variable cost? Explain. (2 marks)

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3
Ch. 6 - Production and Costs
2012
2. The table below shows the input-output relationship of a firm.

Worker (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 returens and epxlain whether the above data illustrate the law.
(5 marks)
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2014
2. Ah Wing runs a store selling mobile phone accessories in Mong Kok.

(b) Give ONE example of variable cost incurred in Ah Wing’ s business. Explain your answer. (2 marks)

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2015
2. Many electronic product retailers are located in Mong Kok.

(b) Suggest TWO reasons why an electronic product retailer in Mong Kok may enjoy external economies of
scale. (4 marks)

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2016
2. 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.

(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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4
Ch. 6 - Production and Costs
3. The table below shows the input-output relationship of a firm.

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)
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2017
2. Steven is a restaurant owner. He pays his waiters a monthly salary and allows them to keep the tips
from customers.

(b) Due to the opening of several new branches, the average cost of production of the restaurant has
increased. Explain with TWO reasons why this happens. (4 marks)
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2018
3. 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)

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5
Ch. 6 - Production and Costs
2019
5. 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.

(a) Mr. Wong teaches the children from both families English while Mrs Chan teaches them Japanese.
(3 marks)
(b) One Christmas Eve, the two families buy food ingredients and cook together instead of buying and
cooking separately (3 marks)

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2020
2. A chain restaurant providing Chinese cuisine set up a cake shop.

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

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6
Ch. 6 - Production and Costs
Answer

2007

2009

2010

7
Ch. 6 - Production and Costs
2011

SP

2012

2014
2

8
Ch. 6 - Production and Costs
2015
2

2016
2.

3. 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 products of this factor will eventually diminish. (3)

Yes, when labour increases from 3 to 4 units, the marginal product of labour drops from 18 to 14 units, so the law of
diminishing returns holds. (3)

2017
2 (b) Reasons:
– The firm may become too large in scale so the managerial efficiency is lowered.
– The firm may have large outstanding loans so the cost of further borrowing @2
increases. max: 4
– The market may be saturated so the marketing cost increases.
– Any other relevant point
[Mark the FIRST TWO reasons only.]

2018

9
Ch. 6 - Production and Costs
2019

2020
2.
(c) Reasons : (1@, Max 2)
- share of advertising cost by a larger number of output
- bulk purchase of raw materials in production
- more extensive division oflabour
- any other relevant point
[Mark the FIRST TWO points only.)

Average Marks Distribution in DSE paper 2 (70% of the subject) 4/ 120

Average Marks Distribution in DSE Economics 2.33/70

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