The theory of the firm Revision Questions and Answers

1 . Highlight four ways a trader benefits from localization of industries
2. State four factors that determine the size of a firm
3. Highlight four measures the government may take to promote delocalization in the country
4. Highlight four reasons why small scale businesses are popular in Kenya inspite of economies
of scale associated with large scale organizations
5. State five reasons for the existence of small firms in an economy
6. Give four ways in which a firm may achieve marketing economies of scale
7. The table below represents units of output and their cost of production. Find the values of
costs A, B, C and D

Units of output Total fixed cost (TFC) Total variable cost (TVC) Total cost Average fixed cost (AFC) Average variable cost (AVC) Average cost(AC) Marginal cost (MA)
3 300 240 A 100 80 180 60
4 300 320 620 75 B 155 80
5 300 500 800 C 100 160 180
6 300 720 1020 50 120 D 220

8. The table below shows the total cost of a certain product at given output levels

Output (units) 0 10 20 30 40 50 70 80
Total cost (Kshs) 300 380 470 550 620 680 730 770

At output of 50 units; determine
a) Total fixed costs
b) Average variable cost
c) Average total cost
d) Marginal cost
9. Give four reasons why a firm may choose to remain small despite the benefits of expansion

17. -THE THEORY OF THE FIRM
1. Highlight five reasons why a firm may be located near the market for its products
2. Explain five reasons why the government may adopt the delocalization policy of locating
3. Discuss five factors that may account for the existence of small firms in an economy
4. Explain five factors that determine the size of a firm
5. Explain five factors that determine the decision of a firm on what good sand services to produce
6. Explain five circumstances under which a firm may be located near the source of raw Materials
7. Outline any five reasons that account for the popularity of small scale retails in Kenya
8. Explain five factors that may account for the survival of small firms in an industry.

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