introduction to micro economics section 2 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (b)

Full cost pricing is a practice where the price of a product is calculated by a firm on the basis of its direct costs per unit of output plus a markup to cover overhead costs and profits.

Having worked out what average total cost would be if the level of output expected for the next period of time were actually achieved, firms add to this a 'satisfactory' profit margin.

This is known as 'full cost' pricing. The price is equal to 'full' cost, including an acceptable profit.

Answer: (d)

When the marginal revenue productivity of a factor is equal to the marginal- cost (MR=MC) of the factor, the firm will be in equilibrium and its profits maximized.

Equilibrium in perfect competition is the point where market demands will be equal to market supply.

The condition that price equals both average revenue and marginal revenue (P = AR = MR) is the standard condition for a perfectly competitive firm.

Answer: (d)

The addition to total cost by producing an additional unit of output by a firm is called Marginal cost. Average cost is the total cost of producing a given output divided by that output.

Answer: (a)

The equilibrium price is the price where the goods and services supplied by the producer equals the goods and services demanded by the customer(s).

How the equilibrium price is achieved is through the 'Invisible Hand', or market forces of the economy.

Answer: (b)

All goods which are meant either

1. for consumption by consumers or
2. for investment by firms are called final goods.

They are finished goods, meant for final use. These are neither resold nor do they enter into further stages of production. For example, Cars, television sets, cloth, food, machinery, equipment etc. are final goods.