introduction to micro economics section 8 MCQ Questions & Answers Detailed Explanation

Answer: (a)

Rent accrues to land which is fixed in supply even in the longer run. It is permanent. In contrast to it is a quasi rent, introduced by Marshall, which is inelastic in the short run, but elastic in the longer run.

Answer: (d)

Microeconomics is the branch of economics concerned with isolated parts of the economy, for example, individual people, firms or industries. It involves such topics as the theory of prices and of the firm.

Answer: (b)

Demand for a commodity refers to the quantity of the commodity that people are willing to purchase at a specific price per unit of time, other factors (such as the price of related goods, income, tastes and preferences, advertising, etc) being constant.

Demand includes the desire to buy the commodity accompanied by the willingness to buy it and sufficient purchasing power to purchase it. So changes in the unit price of a commodity lead to either extension or contraction in demand.

The law of demand states that there is an inverse relationship between the quantity demanded of a commodity and its price, other factors being constant. In other words, the higher the price, the lower the demand and vice versa, other things remaining constant.

Answer: (c)

In economics, utility is a representation of preferences over some set of goods and services. Preferences have a utility representation so long as they are transitive, complete, and continuous.

Usefulness refers to which extent something is useful and the utility is the quality of that piece in practical use. Both are inter-related terms.

The utility is a factor of usefulness term. Usefulness means having the practical utility of a piece that is beneficial, pertinent and functional.

Answer: (c)

Average fixed cost refers to fixed costs of production (FC) divided by the quantity (Q) of output produced. It is a per-unit-of-output measure of fixed costs.

As the total number of goods produced increases, the average fixed cost decreases because the same amount of fixed costs is being spread over a larger number of units of output.

Answer: (b)

Prime Cost refers to a business’s expenses for the materials and labour it uses in production. Prime cost is a way of measuring the total cost of the production inputs needed to create a given output.

By analyzing its prime costs, a company can determine how much it must charge for its finished product in order to make a profit.

Variable costs are expenses that change in proportion to the activity of a business. Variable cost is the sum of marginal costs over all units produced. It can also be considered normal costs. Fixed costs and variable costs make up the two components of the total cost.

Prime Cost = Direct Materials + Direct Labour+ Direct expenses.

This comes to Variable cost + Administrative cost. The administrative cost is the cost associated with the general management of the organization in accounting.