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

Answer: (d)

A Monopoly exists when a specific person or enterprise is the only supplier of a particular commodity, This contrasts with a monopsony which relates to a single entity's control of a market to purchase a good or service, and with an oligopoly which consists of a few entities dominating an industry.

Monopolies are thus characterized by a lack of economic competition to produce the good or service and a lack of viable substitute goods

Answer: (a)

The concept of opportunity cost is based on scarcity and choice. The opportunity cost of a commodity is the next best alternative commodity sacrificed. In other words, the opportunity cost of a commodity is forgoing the opportunity to produce alternative goods and services.

If one commodity is produced another commodity is sacrificed. So the opportunity cost of producing a good is equal to the cost of not producing another commodity.

Answer: (d)

The situation when a firm is operating at loss in a short period in perfect competition arises when the price is so low that total revenue is not even enough to cover the variable cost of production.

The shutdown point is that point at which the price is equal to average variable costs or the firm covers its variable costs.

So it should operate as long as it covers even the variable costs.

Answer: (c)

A shift in the demand curve is caused by a factor affecting demand other than a change in price. If any of these factors change then the amount consumers wish to purchase changes whatever the price.

The shift in the demand curve is referred to as an increase or decrease in demand. A movement along the demand curve occurs when there is a change in price. This may occur because of a change in supply conditions.

The factors affecting the demand are assumed to be held constant. A change in price leads to a movement along the demand curve and is referred to as a change in quantity demanded.

Answer: (b)

Plant and machinery are Producers’ goods. Together with stocks and work in progress, these goods are collectively termed ‘Capital’.