introduction to micro economics section 2 MCQ Questions & Answers Detailed Explanation
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The following question based on Introduction to Micro Economics topic of indian economy mcq
(a) price leadership
(b) number of firms
(c) interdependence
(d) negligible influence on price
The correct answers to the above question in:
Answer: (c)
An oligopoly is a market form in which a market or industry is dominated by a small number of sellers (oligopolists). Because there are few sellers, each oligopolist is likely to be aware of the actions of the others. The decisions of one firm influence, and are influenced by, the decisions of other firms.
Some of its characteristics are:
- Profit maximization conditions;
- Number of firms;
- Product differentiation;
- Interdependence;
- Non-Price Competition, etc.
The distinctive feature of an oligopoly is interdependence.
Oligopolies are typically composed of a few large firms. Each firm is so large that its actions affect market conditions. Therefore the competing firms will be aware of a firm’s market actions and will respond appropriately.
This means that in contemplating a market action, a firm must take into consideration the possible reactions of all competing firms and the firm’s countermoves.
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Question : 1
Under full cost pricing, price is determined
a) by the total cost of production
b) by adding a margin to the average cost
c) by comparing marginal cost and marginal revenue
d) by adding normal profit to the marginal cost
Answer »Answer: (b)
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.
Question : 2
The equilibrium of a firm under perfect competition will be determined when
a) Marginal Cost > Average Cost
b) Marginal Revenue > Average Cost
c) Marginal Revenue > Average Revenue
d) Marginal Revenue = Marginal Cost
Answer »Answer: (d)
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.
Question : 3
The addition to total cost by producing an additional unit of output by a firm is called
a) Opportunity cost
b) Variable cost
c) Average cost
d) Marginal cost
Answer »Answer: (d)
The addition to total cost by producing an additional unit of output by a firm is called Marginal cost. Average cost is the total cost of producing a given output divided by that output.
Question : 4
Engel’s Law states the relationship between
a) quantity demanded and income of the consumers
b) quantity demanded and price of a commodity
c) quantity demanded and price of substitutes
d) quantity demanded and tastes of the consumers
Answer »Answer: (a)
Engel’s law is an observation in economics stating that as income rises, the proportion of income spent on food falls, even if actual expenditure on food rises.
In other words, the income elasticity of demand for food is between 0 and 1.
Engel’s Law doesn’t imply that food spending remains unchanged as income increases: It suggests that consumers increase their expenditures for food products (in % terms) less than their increases in income.
Question : 5
Extreme forms of markets are
a) Perfect competition; Monopolistic competition
b) Perfect competition; Oligopoly
c) Oligopoly; Monopoly
d) Perfect competition; Monopoly
Answer »Answer: (d)
There are two extreme forms of market structure: monopoly and, its opposite, perfect competition.
Perfect competition is characterized by many buyers and sellers, many products that are similar in nature and, as a result, many substitutes.
A monopoly is a market structure in which there is only one producer/ seller for a product.
Question : 6
Economic problem arises mainly due to
a) lack of industries
b) overpopulation
c) unemployment
d) scarcity of resources
Answer »Answer: (d)
The theory of Economic problems states that there is scarcity, or that the finite resources available are insufficient to satisfy all human wants and needs.
The problem then becomes how to determine what is to be produced and how the factors of production (such as capital and labour) are to be allocated.
GET Introduction to Micro Economics PRACTICE TEST EXERCISES
introduction to micro economics section 1
introduction to micro economics section 2
introduction to micro economics section 3
introduction to micro economics section 4
introduction to micro economics section 5
introduction to micro economics section 6
introduction to micro economics section 7
introduction to micro economics section 8
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