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

Answer: (d)

Monopoly refers to a market in which there is only one supplier and no other firms are able to enter.

Answer: (c)

The modern theory of rent does not confine itself to the reward of the only land as a factor of production as was the case in the classical Ricardian theory of rent.

Rent in the modern sense can arise in respect of any other factor of production, i.e., labour, capital and entrepreneurship.

Answer: (c)

The Total Fixed Cost Curve is a curve that graphically represents the relation between the total fixed cost incurred by a firm in the short-run product of a good or service and the quantity produced.

This curve is constructed to capture the relation between total fixed cost and the level of output, holding other variables, like technology and resource prices, constant.

Because total fixed costs are in fact, fixed, the total fixed cost curve is, in fact, a horizontal line.

Answer: (b)

As per the law of diminishing marginal utility, the utility of each successive unit goes on diminishing as more and more units of a commodity are consumed.

A rational consumer will consume the commodity up to a point where the marginal utility of the final unit of the commodity is equal to the marginal utility of money (in terms of price) paid for it. In this way, the consumer will get maximum satisfaction and will be in equilibrium.

Answer: (b)

Negative income elasticity of demand is associated with inferior goods. The Giffen good is an unusual type of inferior good which has a positive price elasticity of demand.

It is a good which people paradoxically consume more of as the price rises, violating the law of demand.

When the price goes up, the quantity demanded also goes up.

Answer: (c)

In economics, factors of production are the inputs to the production process. Factors of production’ may also refer specifically to the ‘primary factors’, which are stocks including land, labour (the ability to work), and capital goods applied to production. Many economists today consider “human capital” (skills and education) as the fourth factor of production, with entrepreneurship as a form of human capital.

In markets, entrepreneurs combine the other factors of production, land, labour, and capital, in order to make a profit. Often these entrepreneurs are seen as innovators, developing new ways to produce and new products. In a planned economy, central planners decide how land, labour, and capital should be used to provide maximum benefit for all citizens.