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

Answer: (c)

Marginal utility of a good or service is the gain (or loss) from an increase (or decrease) in the consumption of that good or service.

As the rate of commodity acquisition increases, marginal utility decreases. If commodity consumption continues to rise, marginal utility at some point falls to zero, reaching maximum total utility.

Further increase in consumption of units of commodities causes the marginal utility to become negative; this signifies dissatisfaction.

Answer: (d)

It was Adam Smith who conceptualized Economics as a science of wealth. Elaborating upon the scope and fundamental conceptualizations of the new science, he then called political economy as "an inquiry into the nature and causes of the wealth of nations.”

Answer: (d)

Marginal utility measures the extra utility (or satisfaction) from consuming an additional unit of a product. Total utility is the total satisfaction from the consumption of the product.

According to the Law of Diminishing Marginal Utility, total utility increases at a diminishing rate. When marginal utility is 0 this means there is no increase in total satisfaction from the consumption of that unit. So the total unit is at maximum.

Answer: (d)

Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another as goods but not perfect substitutes (such as from branding, quality, or location).

In monopolistic competition, a firm takes the prices charged by its rivals as given and ignores the impact of its own prices on the prices of other firms. In a monopolistically competitive market, firms can behave like monopolies in the short run, including by using market power to generate profit.

In the long run, however, other firms enter the market and the benefits of differentiation decrease with the competition; the market becomes more like a perfectly competitive one where firms cannot gain economic profit.

Answer: (d)

A monopolist's marginal revenue is always less than or equal to the price of the good. Marginal revenue is the amount of revenue the firm receives for each additional unit of output.

It is the difference between total revenue - price times quantity - at the new level of output and total revenue at the previous output (one unit less).