introduction to micro economics section 5 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (c)

There are six characteristics of monopolistic competition (MC):

1. Product differentiation;
2. many firms;
3. Free entry and exit in the long run;
4. Independent decision making;
5. market power; and
6. Buyers and Sellers do not have perfect information.

Answer: (c)

According to the Law of demand, consumers buy more of a good when its price is lower and less when its price is higher.

It states that the quantity demanded and the prices of a commodity are inversely related, other things remaining constant.

Answer: (a)

Elasticity (e) expressed by the formula 1 > e > 0 is relatively inelastic. Elasticity is responsiveness of one variable to a change in another, when other conditions are held constant.

Answer: (a)

The law of diminishing returns (also the law of diminishing marginal returns or law of increasing relative cost) states that in all productive processes, adding more of one factor of production, while holding all others constant (“ceteris paribus”), will at some point yield lower per-unit returns.

The law of diminishing returns does not imply that adding more of a factor will decrease the total production, a condition known as negative returns, though in fact, this is common.

Answer: (c)

In microeconomics, economies of scale are the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased.

“Economies of scale” is a long-run concept and refers to reductions in unit cost as the size of a facility and the usage levels of other inputs increase.