Lesson 3.1.3

3.1.3 Demergers Quiz: Pearson Edexcel Economics, Unit 3

20 questions

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Lesson 3.1.3, Demergers: 20 multiple choice questions for the Pearson Edexcel Economics (9EC0), Unit 3: Theme 3: Business behaviour and the labour market, written with Revision Ninja.

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The 20 questions

  1. What occurs when a single business splits into two or more independent companies?

    • Horizontal integration
    • A joint venture
    • A merger
    • A demerger

  2. What is a primary reason why a firm might decide to demerge?

    • Diversifying risk
    • Monopoly power
    • Core business focus
    • Rapid market growth

  3. What is a potential negative impact of a demerger on workers?

    • Lower inflation
    • Reduced job security
    • Increased market share
    • Higher dividends

  4. Unlike a takeover, what happens to a firm's structure during a demerger?

    • It expands rapidly
    • It splits apart
    • It acquires rivals
    • It merges horizontally

  5. How can consumers benefit if a demerger increases competition between the separated firms?

    • Monopoly power
    • Higher prices
    • Lower prices
    • Decreased choice

  6. What is a primary strategic reason for a conglomerate to execute a demerger?

    • Achieve scale economies
    • Focus on core markets
    • Eliminate all competition
    • Increase market share

  7. What cost disadvantage might newly demerged companies experience due to smaller scale?

    • Zero transport costs
    • Loss of scale economies
    • Lower fixed costs
    • Eliminated overheads

  8. Which stakeholder group faces new contract renegotiations when a logistics unit is demerged?

    • External auditors
    • Shareholders
    • Suppliers
    • Local councils

  9. How can a demerger help to reduce a firm's average production costs?

    • Removing scale diseconomies
    • Increasing market share
    • Expanding bureaucracy
    • Gaining monopoly power

  10. What is a major risk for a newly demerged supplier firm previously owned by a buyer?

    • Mandatory government subsidies
    • Guaranteed monopoly profits
    • Zero production costs
    • Loss of internal customer

  11. Why might share prices rise following a corporate demerger?

    • Unlocking shareholder value
    • Increased regulatory burden
    • Higher corporation tax
    • Greater diseconomies

  12. What is a common impact of a demerger on employee pension schemes?

    • Guaranteed double benefits
    • Immediate scheme liquidation
    • Schemes are divided
    • Automatic wage increases

  13. How does a demerger typically affect competition within a market?

    • Collusion becomes mandatory
    • Monopoly is created
    • Competition increases
    • Competition decreases

  14. What happens to a firm's market power following a demerger?

    • Market power rises
    • Monopoly power forms
    • No impact occurs
    • Market power falls

  15. Which factor can prevent shareholders from gaining financial value after a demerger?

    • Lost scale economies
    • Increased managerial focus
    • Higher share demand
    • Greater innovation

  16. What is a major potential disadvantage of a demerger for workers?

    • Job redundancy
    • Guaranteed wage rise
    • Higher pension payout
    • Reduced working hours

  17. How can a demerger lead to improved managerial efficiency?

    • Increased bureaucratic overhead
    • Greater strategic focus
    • Greater diseconomies
    • Higher communication costs

  18. Which stakeholder group is negatively affected if a demerger leads to local factory closures?

    • Foreign competitors
    • Local communities
    • Company directors
    • Shareholders

  19. Why might consumers suffer following a corporate demerger?

    • Increased product choice
    • Higher product prices
    • Lower switching costs
    • Greater price competition

  20. Why might a demerger succeed despite rising fixed overhead costs?

    • Higher trade barriers
    • Greater monopsony power
    • Increased business focus
    • Reduced specialisation

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