introduction to micro economics section 4 MCQ Questions & Answers Detailed Explanation

Answer: (c)

Under perfect competition, the firms operate at the minimum point of the long-run average cost curve.

In this way, the actual long-run output of the firm under monopolistic competition falls short of what is produced under perfect competition which can be considered the socially ideal output. This gives the measure of excess capacity which lies unutilized under imperfect competition.

Answer: (b)

Price elasticity of demand is a measure of the responsiveness of the quantity of a good or service demanded to changes in its price.

This measure of elasticity is sometimes referred to as the own-price elasticity of demand for a good, i.e., the elasticity of demand with respect to the good's own price, in order to distinguish it from the elasticity of demand for that good with respect to the change in the price of some other good, i.e., a complementary or substitute good.

Answer: (b)

Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another as goods but not perfect substitutes (such as from branding, quality, or location).

In monopolistic competition, a firm takes the prices charged by its rivals as given and ignores the impact of its own prices on the prices of other firms.

There are six characteristics of monopolistic competition (MC):

1. Product differentiation;
2. many firms;
3. Free entry and exit in the long run;
4. Independent decision making;
5. market power; and
6. Buyers and Sellers do not have perfect information.

Toothpaste, toilet papers, computer software and operating systems are examples of differentiated products.

Answer: (a)

Returns to Scale refers to changes in production that occur when all resources are proportionately changed in the long run. It comes in three forms-- increasing, decreasing, or constant based on whether the changes in production are proportionally more than, less than, or equal to the proportional changes in inputs.

It is the guiding principle for long-run production, playing a similar role that the law of diminishing marginal returns plays for short-run production.

Answer: (d)

Expenditure on the advertisement and public relations by an enterprise is a part of its intermediate consumption. These are treated as intermediate goods and services which form part of the cost of producing other goods.

Intermediate consumption consists of the total monetary value of goods and services consumed or used up as inputs in production by enterprises, including raw materials, services and various other operating expenses.

Answer: (b)

The supply curve for labor depends on variables such as population, wage rates, etc. in developing countries, the vast population base explains the relatively lower wage rates and easy accessibility to labour supply. This is just the opposite in the case of developed countries.