DSEpp - Firms and Production

DSE Past paper_Firms and Production
2012 DSE MC
2013 DSE MC
2014 DSE MC
2015 DSE MC
2012: 6C 7A 8B 9B 10D
2013: 5C 6D 7D 8A 9A
2014: 5C 7D 6C 8B 9B 11B 10D
2015: 5B 6B 7B 8A 9A
Question 1 (2015#2)
Many electronic product retailers are located in Mong Kok.
(a) To which type of production do electronic product retailers belong? Explain your answer. (2
marks)
(b) Suggest TWO reasons why an electronic product retailer in Mong Kok may enjoy external
economies of scale. (4 marks)
a) Tertiary production as it provides retail services
b) Reasons
 Reduce cost of marketing and promotion
 Reduce transportation cost for suppliers
 More related businesses available such as accesssories and repair
 Any other relevant point
 Mark the first two points only
Question 2 (2015#9ab)
McDonald’s is one of the major fast food chains in Hong Kong.
(a) McDonald’s is a private limited company in Hong Kong. State ONE advantage and ONE
disadvantage of forming a private limited company over forming a public limited company. (2 marks)
(b) McDonald’s has expanded its business by operating McCafé, which sells premium coffee like other
coffeehouses such as Starbucks. To which type of expansion does this belong? Explain. (2 marks)
a)
Advantage
 Lower risk of being taken over
 No need to disclose accounting information to the public
 Mark the first point only
Disadvantage
 Owners cannot freely transfer their stocks
 The firm cannot raise capital by issuing stocks to the general public
 Mark the first point only
b)
 Lateral expansion
 As fast food and coffee are related but not directly competitive products
Question 3 (2015#10bc)
Suppose a football club in Hong Kong hired a famous football player from Brazil as the coach for a 2-
month course for kids. He received $8 million as his salary and returned to Brazil afterwards. However,
the enrollment of the course was poor and the revenue from the course was $3 million only
(b) The following are contracts for two professional football players.
Explain TWO advantages of Contract B over Contract A from the viewpoint of the employer.
(4 marks)
(c) Professional football players often retire in their mid-thirties. Although most of them have once
been well-paid as footballers, some of them can only find low-paid jobs after retirement. Explain the
above phenomenon in terms of labour mobility. (3 marks
b)
 Advantage of contract B over A:
 The owner of the football team can share some business risks with player B as the former
would make less payment to the latter when no match is played and/or no goal is scored
 The owner of the football team can have a lower cost of monitoring players’ performance as
palyer B would have higher work incentive in training and in matches
 Any other relevant point (mark the first two only)
c)
 Professional football players have low occupational mobility as their skills are very specific and
not easily transferable to other jobs
a)
 Entrepreneurship
 As he bears business risk and makes business decision
b)
 Cost of buying the accessories, or wages of part-time workers
 As expenses on these items would vary (increase) with output of Ah Wing’s shop
Question 5 (2014#4)
a)
 Vertical backward expansion
 Because by starting Fai Lok institute, Tai Fai Lok Group has expanded its operation vertically
backward to previous stage of production to control directly the supply of factor inputs (chefs and
managers) to its original (food) business
b)
 More steady supply of factor inputs such as chefs and managers
 Better use of the brand name
 Program can be tailor-made for those graduates from the institute who are hired to work in the
group’s restaurant, so as to shorten their training time
 Any other (mark the first TWO only)
Question 6 (2014#10cd)
c) Public limited company / listed company

d)
I) in a partnership, any given owner cannot transfer his or her shares of ownership without the
consent of other partners, while in a public limited company the shares are freely transferrable
II) a partnership does not have independent legal status while a public limited company has an
independent legal status
a) Division of labour
 choosing the msot suitable person for the job
 practice makes perfect
 saving time in training
 stimulus to mechanisation
 any other relevant point (first three points only)
b)
i) improves work incentive of the manager
ii) gives a more stable income as the manager still receives a basic salary even if the business is poor
Question 8 (2013#11bi)
 it increases the geographical mobility as workers are more willing to travel to other districts for
work
Question 9 (2012#2)
 The law states that (holding technology constant), when more and more units of variable factor
are added successively to a given quantity of fixed factors, the marginal product of this factor will
eventually diminish.
 No because all factors are variable
Question 10(2012#3)
A)
 Conglomerate expansion
 because the firm has expanded into unrelated industries
b)
 have product/ income diversification so as to spread risk
 to make use of its brand name of one product in other products
 to use resources more efficiently as the two companies can share some of their resources
 to enjoy economies of scale (lower avg cost of advertising as the total cost can be spread over a
larger quantity of output)
 any other (mark first three only)
Question 11 (2012#10a)
Aii)
 he can get interest return even if the company does not make any profit that year
 higher priority of getting paid than shareholders if the company is liquidated
 any other relevant point (first two)
Question 12 (2012#12b)
Advantages
 tighter control of ownership/ more difficult to be taken over
 no need to disclose the accounting info to public
 any other relevant point (first two only)
Disadvantages:
 cannot issue shares to general public to raise capital
 difficult to transfer its ownership
 any other relevant (first two only)

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c) Public limited company / listed company

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