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

Answer: (c)

In economics, income elasticity of demand measures the responsiveness of the demand for a good to a change in the income of the people demanding the good.

An Inferior good is a good that decreases in demand when consumer income rises, unlike normal goods, for which the opposite is observed. Normal goods are those for which consumers' demand increases when their income increases.

Answer: (a)

Fixed costs are business expenses that are not dependent on the level of goods or services produced by the business.

They tend to be time-related, such as salaries or rents being paid per month and are often referred to as overhead costs.

This is in contrast to variable costs, which are volume-related (and are paid per quantity produced).

Answer: (a)

Production function specifies the output of a firm, an industry, or an entire economy for all combinations of inputs.

The relationship of output to inputs is non-monetary; that is, a production function relates physical inputs to physical outputs, and prices and costs are not reflected in the function.

Answer: (a)

The equilibrium price is the price where the goods and services supplied by the producer equals the goods and services demanded by the customer(s).

How the equilibrium price is achieved is through the 'Invisible Hand', or market forces of the economy.

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.

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.