introduction to micro economics section 6 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (c)

The Total Fixed Cost Curve is a curve that graphically represents the relation between the total fixed cost incurred by a firm in the short-run product of a good or service and the quantity produced.

This curve is constructed to capture the relation between total fixed cost and the level of output, holding other variables, like technology and resource prices, constant.

Because total fixed costs are in fact, fixed, the total fixed cost curve is, in fact, a horizontal line.

Answer: (b)

According to Adam Smith, consumption is the sole end and purpose of all production. The goal of production is the satisfaction of human desire.

All the processes, by which human labour creates goods and services, bring them to the ultimate consumer.

Answer: (c)

Marginal cost is the change in total cost that arises when the quantity produced changes by one unit.

That is, it is the cost of producing one more unit of a good. In general terms, marginal cost at each level of production includes any additional costs required to produce the next unit.

Answer: (a)

A real wage rate is a nominal wage rate divided by the price of a good and is a transparent measure of how much of the good an hour of work buys. It provides an important indicator of the living standards of workers, and also of the productivity of workers.

While differences in earnings or incomes may be misleading indicators of worker welfare, real wage rates are comparable across time and location.

Nominal wages are not sufficient to tell us if workers gain since, even if wages rise, the price of one of the goods also rises when moving to free trade. The real wage represents the purchasing power of wages— that is, the quantity of goods the wages will purchase.

Answer: (a)

The term real wages refers to wages that have been adjusted for inflation. This term is used in contrast to nominal wages or unadjusted wages.

Real wages provide a clearer representation of an individual’s wages. The real purchasing power of income or money is the key determinant of the real wage. It is an indication of an individual’s actual purchasing power.

Real wages are a useful economic measure, as opposed to nominal wages, which simply show the monetary value of wages in that year. However, real wages do not take into account other compensation like benefits or old-age pensions.