introduction to micro economics section 3 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (b)

The exchange value of every commodity can be expressed in terms of money. This possibility has enabled money to become a medium for expressing values when the growing elaboration of the scale of values which resulted from the development of exchange necessitated a revision of the technique of valuation.

When the value is expressed in terms of money, it is called price. Thus, the price can be defined as the exchange value of a commodity expressed in terms of money.

Answer: (a)

A perfectly competitive firm’s supply curve is that portion of its marginal cost curve that lies above the minimum of the average variable cost curve. A perfectly competitive firm maximizes profit by producing the quantity of output that equates to price and marginal cost.

In that price equals marginal revenue for a perfectly competitive firm, price is also equal to marginal cost. In other words, the firm produces by moving up and down along its marginal cost curve.

The marginal cost curve is thus the perfectly competitive firm’s supply curve.

Answer: (b)

Production function explains the relationship between factor input and output under given technology. It explains as to for increasing the output, in which proportion various inputs or factors may be employed under given technological conditions.

In short, production function may be defined as a technological relationship that tells the maximum output producible from various combinations of inputs. Production function explains the physical relationship between input and output under given technology.

Answer: (c)

Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another (e.g. by branding or quality) and hence are not perfect substitutes.

Textbook examples of industries with market structures similar to monopolistic competition include restaurants, cereal, clothing, shoes, and service industries in large cities.

Answer: (a)

The Marginal Utility Curve is a curve illustrating the relation between the marginal utility obtained from consuming an additional unit of a good and the quantity of the good consumed. The negative slope of the marginal utility curve reflects the law of diminishing marginal utility.

The marginal utility curve also can be used to derive the demand curve. Marginal Utility is the utility derived from the last unit of a commodity purchased. One of the earliest explanations of the inverse relationship between price and quantity demanded is the law of diminishing marginal utility.

This law suggests that as more of a product is consumed the marginal (additional) benefit to the consumer falls; hence consumers are prepared to pay less.