Practice the following question on Microeconomics:
Production function refers to the functional relationship between input and ___.
(a) product
(b) produce
(c) output
(d) service
Practice questions for microeconomics answers is (c)
The Production function expresses a functional relationship amidst quantities of raw materials and goods. It is the name given to the relationship between rates of input of productive services and the rate of output of product.
If a good has negative income elasticity and the positive price elasticity of demand, it is a
(a) giffen good
(b) normal good
(c) superior good
(d) an inferior good
Practice questions for microeconomics answers is (a)
A negative income elasticity of demand is associated with inferior goods. The Giffen good is an unusual type of inferior good which has positive price elasticity of demand. It is a good which people paradoxically consume more of as the price rises, violating the law of demand. When price goes up, the quantity demanded also goes up.
The demand for labor is called
(a) Market demand
(b) Direct demand
(c) Derived demand
(d) Factory demand
Practice questions for microeconomics answers is (c)
The demand for labour is “derived” from the production and demand for the product being demanded. If the demand for the product increases, either the price will increase or the demand for production labour will increase until the equilibrium price and production numbers are met. Labour is “derived” from the market demand for the product.
At the “Break-even point”,
(a) the industry is in equilibrium in the long run.
(b) the producers suffer the minimum losses
(c) the seller earns maximum profit
(d) the firm is at a zero-profit point
Practice questions for microeconomics answers is (d)
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.” For businesses, reaching the break-even point is the first major step towards profitability.
The equilibrium of a firm under perfect competition will be determined when
(a) Marginal Revenue > Average Cost
(b) Marginal Revenue > Average Revenue
(c) Marginal Revenue = Marginal Cost
(d) Marginal Cost > Average Cost
Practice questions for microeconomics answers is (c)
When the marginal revenue productivity of a factor is equal to the marginal- cost (MR=MC) of the factor, the firm will be in equilibrium and its profits maximized. Equilibrium in perfect competition is the point where market demands will be equal to market supply. The condition that price equals both average revenue and marginal revenue (P = AR = MR) is the standard condition for a perfectly competitive firm.
The elasticity of demand with respect to price is
(a) elasticity = %change in demand %change in price
(b) elasticity = %change in price %change in demand
(c) elasticity = %change in-demand %change in supply
(d) elasticity = %changeinsupply %change in price
Practice questions for microeconomics answers is (a)
Price elasticity of demand (PED or Ed) is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price.
elasticity = % change in demand % change in price
The third stage of the Law of Variable Proportion is called
(a) negative returns
(b) positive returns
(c) constant returns
(d) increasing returns
Practice questions for microeconomics answers is (a)
The stages of Law of Variable Proportion are: Stage 1: Increasing return; Stage 2: Diminishing return; and Stage 3: Negative Return. In the third stage Marginal Product of variable factor is zero. In this stage the Total Product starts diminishing.
A supply function expresses the relationship between
(a) price and output
(b) price and selling cost
(c) price and demand
(d) price and consumption
Practice questions for microeconomics answers is (a)
The supply function expresses the relationship between the total quantity supplied and the price received by all suppliers per unit of time, holding other factors constant. It illustrates the relation between price and supply.The diagram (Price is shown on the Y-axis and Quantity per day on the X-axis) shows that suppliers will produce quantity Q1 units of a good if the price they receive is P1 . As the price keeps decreasing, the quantity produced also keeps on decreasing. So though the supply function has to do with supply and price, it can be perceived to express similar functional relationship between price and output (in terms of quantity that will be produced).
“Marginal Cost” equals
(a) total cost minus total benefit for the last unit produced
(b) total cost divided by total benefit for the last unit produced
(c) total cost divided by the quantity
(d) the change in total cost divided by the change in quantity
Practice questions for microeconomics answers is (d)
Marginal cost is the change in the total cost that arises when the quantity produced has an increment by unity. That is, it is the cost of producing one more unit of a good. To illustrate marginal cost let’s assume that the total cost of producing 10,000 units is Rs. 50,000. If we produce a total of 10,001 units the total cost is Rs. 50,002. That would mean the marginal cost—the cost of producing the next unit—was Rs. 2.
The minimum payment to a factor of production is called
(a) Quasi Rent
(b) Rent
(c) Wages
(d) Transfer Payment
Practice questions for microeconomics answers is (d)
In economics, factors of production are the inputs to the production process. There are three basic factors of production: land, labour, capital. The payment for use and the received income of a landowner is rent. The payment for someone else’s labor and all income received from one’s own labor is wages. The modern theory of rent is that it is the difference between the actual earning of a factor unit over its trans fer earnings. So, the Transfer earnings are the minimum payment required to keep a factor of production in its present use. It is also known as opportunity cost.
