introduction to micro economics section 5 MCQ Questions & Answers Detailed Explanation

Answer: (a)

Elasticity (e) expressed by the formula 1 > e > 0 is relatively inelastic. Elasticity is responsiveness of one variable to a change in another, when other conditions are held constant.

Answer: (a)

The law of diminishing returns (also the law of diminishing marginal returns or law of increasing relative cost) states that in all productive processes, adding more of one factor of production, while holding all others constant (“ceteris paribus”), will at some point yield lower per-unit returns.

The law of diminishing returns does not imply that adding more of a factor will decrease the total production, a condition known as negative returns, though in fact, this is common.

Answer: (c)

In microeconomics, economies of scale are the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased.

“Economies of scale” is a long-run concept and refers to reductions in unit cost as the size of a facility and the usage levels of other inputs increase.

Answer: (c)

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.

Answer: (d)

The term ‘supply of labour’ refers to the number of hours of a given type of labour that will be offered for hire at different wage rates. Usually, it is found that the higher the wage rates larger is the supply indicating a direct relationship that exists between the wage rate i.e. the price of labour and labour hours supplied.

The supply of labour is very much affected by the work leisure ratio which in turn is affected by the changes in wage rates.

The supply of labour in an economy depends on various economic and non-economic factors such as:

1. population,
2. sex composition,
3. age composition of the population,
4. willingness to work,
5. wage rates,
6. migration and immigration,
7. working hours,
8. social attitude and standard,
9. legal barriers,
10. education and training,
11. employer’s attitude,
12. labour supply and leisure,
13. the efficiency of workers, etc.

In economics, the marginal product of labour (MPL) is the change in output that results from employing an added unit of labour. It has nothing to do with the supply of labour.

Answer: (c)

Selling cost is total cost of marketing, advertising, and selling a product. It differs from the production cost which is incurred to produce goods.