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

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)

According to Adam Smith, consumption is the sole end and purpose of all production. The goal of production is the satisfaction of human desire.

All the processes, by which human labour creates goods and services, bring them to the ultimate consumer.

Answer: (c)

Marginal cost is the change in total cost that arises when the quantity produced changes by one unit.

That is, it is the cost of producing one more unit of a good. In general terms, marginal cost at each level of production includes any additional costs required to produce the next unit.

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 demand of commodity mainly stems from the consumption capacity of the buyer. Demand is equal to desire plus ability to pay plus will to spend. Demand for a commodity depends upon a number of factors called Determinants.

The demand function can be symbolically expressed as:

QdN = f (PN, PR, I, T, E, O)

Where QdN = Quantity demanded the commodity;

PN = Price of the commodity;

PR = Price of the related commodity;

I = Income of consumers;

T = Taste & Preferences of the consumers;

E = Expectations about the future prices; and O= other factors.

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.