It is prudent to determine the size of the output when the industry is operating in the stage of
(a) increasing returns
(b) constant returns
(c) diminishing returns
(d) negative returns
Multiple choice questions microeconomics solution: (c)
In economics, diminishing returns (also called diminishing marginal returns) is the decrease in the marginal (per-unit) output of a production process as the amount of a single factor of production is increased, while the amounts of all other factors of production stay constant. This law plays a central role in production theory.
Economic rent does not arise when the supply of a factor unit is
(a) Perfectly inelastic
(b) Perfectly elastic
(c) Relatively elastic
(d) Relatively inelastic
Multiple choice questions microeconomics solution: (b)
Economic rent in the sense of surplus over transfer earnings arise when the supply of the factor units is less than perfectly elastic or not perfectly elastic. When the supply of factor units is perfectly elastic, there is no surplus or economic rent and the actual earnings and transfer earnings are equal. In such a scenario, at a given price or remuneration, the entrepreneur can engage any number of factor units.
Bread and butter, car, and petrol are examples of goods that have
(a) composite demand
(b) joint demand
(c) derived demand
(d) autonomous demand
Multiple choice questions microeconomics solution: (c)
Derived demand is a term in economics, where demand for one good or service occurs as a result of the demand for another intermediate/final good or service. This may occur as the former is a part of production of the second. For example, demand for coal leads to derived demand for mining, as coal must be mined for coal to be consumed. As the demand for coal increases, so does its price.
Monopoly means
(a) single buyer
(b) many sellers
(c) single seller
(d) many buyers
Multiple choice questions microeconomics solution: (c)
A Monopoly exists when a specific person or enterprise is the only supplier of a particular commodity, This contrasts with a monopsony which relates to a single entity’s control of a market to purchase a good or service, and with oligopoly which consists of a few entities dominating an industry. Monopolies are thus characterized by a lack of economic competition to produce the good or service and a lack of viable substitute goods.
Under full-cost pricing, the price is determined
(a) by adding a margin to the average cost
(b) by comparing marginal cost and marginal revenue
(c) by adding normal profit to the marginal cost
(d) by the total cost of production
Multiple choice questions microeconomics solution: (a)
Full cost pricing is a practice where the price of a product is calculated by a firm on the basis of its direct costs per unit of output plus a markup to cover overhead costs and profits. Having worked out what average total cost would be if the level of output expected for the next period of time were actually achieved, firms add to this a ‘satisfactory’ profit margin. This is known as ‘full-cost’ pricing. The price is equal to ‘full’ cost, including an acceptable profit.
Who said, “Economics is the Science of Wealth”?
(a) Robbins
(b) J.S. Mill
(c) Adam Smith
(d) Keynes
Multiple choice questions microeconomics solution: (c)
It was Adam Smith who conceptualized Economics as a science of wealth. Elaborating upon the scope and fundamental conceptualizations of the new science, he then called political economy as “an inquiry into the nature and causes of the wealth of nations.”
The relationship between the value of money and the price level in an economy is
(a) Direct
(b) Inverse
(c) Proportional
(d) Stable
Multiple choice questions microeconomics solution: (b)
The basic causal relationship between the price level and the value of money is that as the price level goes up, the value of money goes down. The “value of money” refers to what a unit of money can buy whereas the “price level” refers to the average of all of the prices of goods and services in a given economy.
The situation in which total Revenues equal total cost is known as:
(a) Monopolistic competition
(b) Equilibrium level of output
(c) Break-even point
(d) Perfect competition
Multiple choice questions microeconomics solution: (c)
In economics and cost accounting, the break-even point (BEP) is the point at which cost or expenses and revenue are equal: there is no net loss or gain, and one has “broken even.”
The marginal revenue of a monopolist is:
(a) more than price
(b) equal to price
(c) less than price
(d) less than marginal cost
Multiple choice questions microeconomics solution: (c)
A monopolist’s marginal revenue is always less than or equal to the price of the good. Marginal revenue is the amount of revenue the firm receives for each additional unit of output. It is the difference between total revenue – price times quantity – at the new level of output and total revenue at the previous output (one unit less).
The theory of monopolistic competition has been formulated in the United States of America by
(a) Joan Robinson
(b) Edward Chamberlin
(c) John Bates Clark
(d) Joseph Schumpeter
Multiple choice questions microeconomics solution: (b)
In treatments of monopolistic competition, Edward Chamberlin and Joan Robinson are usually credited with simultaneously and independently developing the theory of monopolistic or imperfect competition. Chamberlin published his book ‘The Theory of Monopolistic Competition’ in 1933, the same year that Joan Robinson published her book on the same topic: ‘The Economics of Imperfect Competition,’ so these two economists can be regarded as the parents of the modern study of imperfect competition.
