introduction to micro economics section 8 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (a)

The following elements are included in the cost of production:

1. Purchase of raw machinery,
2. Installation of plant and machinery,
3. Wages of labour,
4. Rent of Building,
5. Interest on capital,
6. Wear and tear of the machinery and building,
7. Advertisement expenses,
8. Insurance charges,
9. Payment of taxes,
10. In the cost of production, the imputed value of the factor of production owned by the firm itself is also added,
11. The normal profit of the entrepreneur is also included In the cost of production.

Answer: (d)

Price Elasticity of Demand is a measure of the relationship between a change in the quantity demanded of a particular good and a change in its price.

It measures the responsiveness of demand to changes in price for a particular good. If the price elasticity of demand is equal to 0, demand is perfectly inelastic (i.e., demand does not change when price changes).

Answer: (c)

If workers receive a higher nominal wage and the price level does not change, then the real purchasing power of their wages is higher and they are inclined to increase the quantity of labour supplied.

If the workers receive the same nominal wage, but the price level increases, then the real purchasing power of their wages is lower and they are inclined to decrease the quantity of labour supplied.

Any combination of changes in nominal resource prices or the price level that changes the purchasing power of resource prices entices resource owners to change quantities supplied.

Answer: (b)

Prime Cost refers to a business’s expenses for the materials and labour it uses in production. Prime cost is a way of measuring the total cost of the production inputs needed to create a given output.

By analyzing its prime costs, a company can determine how much it must charge for its finished product in order to make a profit.

Variable costs are expenses that change in proportion to the activity of a business. Variable cost is the sum of marginal costs over all units produced. It can also be considered normal costs. Fixed costs and variable costs make up the two components of the total cost.

Prime Cost = Direct Materials + Direct Labour+ Direct expenses.

This comes to Variable cost + Administrative cost. The administrative cost is the cost associated with the general management of the organization in accounting.

Answer: (c)

Average fixed cost refers to fixed costs of production (FC) divided by the quantity (Q) of output produced. It is a per-unit-of-output measure of fixed costs.

As the total number of goods produced increases, the average fixed cost decreases because the same amount of fixed costs is being spread over a larger number of units of output.