introduction to micro economics section 2 MCQ Questions & Answers Detailed Explanation

Answer: (d)

In economics and business decision-making, sunk costs are retrospective (past) costs that have already been incurred and cannot be recovered.

Sunk costs are sometimes contrasted with prospective costs, which are future costs that may be incurred or changed if an action is taken. The sunk cost is distinct from economic loss. Sunk costs may cause cost overrun.

Answer: (a)

Opportunity cost is the cost of any activity measured in terms of the value of the next best alternative forgone (that is not chosen).

It is the sacrifice related to the second-best choice available to someone, or group, who has picked among several mutually exclusive choices. When economists refer to the “opportunity cost” of a resource, they mean the value of the next-highest-valued alternative use of that resource.

If, for example, we spend time and money going to a movie, we cannot spend that time at home reading a book, and we cannot spend the money on something else.

If our next-best alternative to seeing the movie is reading the book, then the opportunity cost of seeing the movie is the money spent plus the pleasure we forgo by not reading the book.

Answer: (b)

A Giffen good is a good whose consumption increases as its price increases. (For a normal good, as the price increases, consumption decreases.) Thus, the demand curve will be upward instead of downward sloping.

A Giffen good has an upward-sloping demand curve because it is exceptionally inferior. It has a strong negative income elasticity of demand such that when a price changes the income effect outweighs the substitution effect and this leads to a perverse demand curve.

Answer: (d)

A bilateral monopoly is a market consisting of a single seller (monopolist) and a single buyer (monopsonist).

For example, if a single firm produced all the copper in a country and if only one firm used this metal, the copper market would be a bilateral monopoly market.

The equilibrium in such a market cannot be determined by the traditional tools of demand and supply.

Answer: (b)

Average revenue is the amount of money received by a firm per unit of output sold. Marginal revenue is the change in total revenue resulting from a small change in the quantity sold.

In a perfectly competitive market, a firm’s Average Revenue is always equal to Marginal Revenue.

Answer: (b)

Macroeconomics is a branch of economics in which a variety of economy-wide phenomena is thoroughly examined such as, inflation, price levels, rate of growth, national income, gross domestic product and changes in unemployment.

On the other hand, Microeconomics studies the behaviour of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms.

So the study of sales of mobile phones by BSNL comes under microeconomics.