introduction to micro economics section 6 MCQ Questions & Answers Detailed Explanation

Answer: (d)

It was Adam Smith who conceptualized Economics as a science of wealth. Elaborating upon the scope and fundamental conceptualizations of the new science, he then called political economy as "an inquiry into the nature and causes of the wealth of nations.”

Answer: (d)

Marginal utility measures the extra utility (or satisfaction) from consuming an additional unit of a product. Total utility is the total satisfaction from the consumption of the product.

According to the Law of Diminishing Marginal Utility, total utility increases at a diminishing rate. When marginal utility is 0 this means there is no increase in total satisfaction from the consumption of that unit. So the total unit is at maximum.

Answer: (d)

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. In a monopolistically competitive market, firms can behave like monopolies in the short run, including by using market power to generate profit.

In the long run, however, other firms enter the market and the benefits of differentiation decrease with the competition; the market becomes more like a perfectly competitive one where firms cannot gain economic profit.

Answer: (c)

The marginal product of an input (factor of production) is the extra output that can be produced by using one more unit of the input (for instance, the difference in output when a firm’s labour usage is increased from five to six units), assuming that the quantities of no other inputs to a production change.

Marginal product, which occasionally goes by the alias marginal physical product (MPP), is one of two measures derived from the total product. The other is an average product. Marginal product is directly proportional to total product.

Answer: (d)

Making the assumption that the market demand curve remains unchanged, higher market supply will reduce the equilibrium market price until the price = long-run average cost.

At this point, each firm is making normal profits only. There is no further incentive for the movement of firms in and out of the industry and a long-run equilibrium has been established.

Answer: (d)

The internal rate of return on an investment or project is the "annualized effective compounded return rate" or discount rate that makes the net present value of all cash flows (both positive and negative) from a particular investment equal to zero.

In more specific terms, the IRR of an investment is the interest rate at which the net present value of costs (negative cash flows) of the investment equals the net present value of the benefits (positive cash flows) of the investment.