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

Answer: (d)

A monopolist's marginal revenue is always less than or equal to the price of the good. Marginal revenue is the amount of revenue the firm receives for each additional unit of output.

It is the difference between total revenue - price times quantity - at the new level of output and total revenue at the previous output (one unit less).

Answer: (a)

In economics, factors of production are the inputs to the production process.

There are three basic factors of production:

1. land,
2. labour,
3. capital.

The payment for use and the received income of a landowner is rent. The payment for someone else’s labour and all income received from one’s own labour is wages. The modern theory of rent is that it is the difference between the actual earning of a factor unit over its transfer earnings.

So the Transfer earnings are the minimum payment required to keep a factor of production in its present use. It is also known as opportunity cost.

Answer: (b)

In economics, the law states that all else being equal, as the price of a product increases, quantity demanded falls; likewise, as the price of a product decreases, quantity demanded increases.

So basically the quantity demanded and the price of a commodity is inversely related, other things remaining constant.

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)

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: (c)

Marginal utility of a good or service is the gain (or loss) from an increase (or decrease) in the consumption of that good or service.

As the rate of commodity acquisition increases, marginal utility decreases. If commodity consumption continues to rise, marginal utility at some point falls to zero, reaching maximum total utility.

Further increase in consumption of units of commodities causes the marginal utility to become negative; this signifies dissatisfaction.