Introduction to Economics MCQs | ECO401 MCQs | Set 7
Introduction to Economics MCQs | ECO401 MCQs | Set 7
MCQs (Multiple Choice Questions)
1) Which of the following would most likely shift the production possibilities curve for a nation outward?
a) A reduction in unemployment
b) An increase in the production of capital goods
c) A reduction in discrimination
d) An increase in the production of consumer goods
Correct Answer:
The correct answer is 'b'.
Explanation:
An increase in the production of capital goods would most likely shift the production possibilities curve outward. This is because capital goods are used to produce other goods and services, so an increase in the production of capital goods will allow the economy to produce more of all goods and services.
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2) The primary use of the kinked-demand curve is to explain price rigidity in:
a) Oligopoly
b) Monopoly
c) Perfect competition
d) Monopolistic competition
Correct Answer:
The correct answer is 'a'.
Explanation:
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3) A market with few entry barriers and with many firms that sell differentiated products is:
b) A monopoly.
c) Monopolistically competitive.
d) Oligopolistic.
Correct Answer:
The correct answer is 'c'.
Explanation:
Monopolistic competition is a market structure characterized by many sellers offering differentiated products, with easy entry and exit for firms. The differentiation of products gives each firm some market power, but the large number of firms and easy entry and exit prevent any one firm from having too much market power.
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4) The maximum price that a consumer is willing to pay for a good is called:
a) The reservation price.
b) The market price.
c) The first-degree price.
d) The block price.
Correct Answer:
The correct answer is 'a'.
Explanation:
The reservation price refers to the highest price a consumer is willing to pay for a particular product or service. It represents the point at which a consumer is indifferent between purchasing the item at that price or not purchasing it at all.
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5) A tennis pro charges $15 per hour for tennis lessons for children and $30 per hour for tennis lessons for adults. The tennis pro is practicing:
a) First-degree price discrimination.
b) Second-degree price discrimination.
c) Third-degree price discrimination.
d) All of the given options.
Correct Answer:
The correct answer is 'c'.
Explanation:
Third-degree price discrimination involves charging different prices to different groups of customers based on their characteristics or willingness to pay. In this scenario, the tennis pro is implementing different prices for children and adults, targeting distinct consumer segments with varying pricing strategies.
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6) An electric power company uses block pricing for electricity sales. Block pricing is an example of:
a) First-degree price discrimination.
b) Second-degree price discrimination.
c) Third-degree price discrimination.
d) All of the given options.
Correct Answer:
The correct answer is 'b'.
Explanation:
Second-degree price discrimination involves a pricing strategy where the price varies based on the quantity purchased. Block pricing, such as tiered rates for electricity, is an example where the price changes at specific consumption thresholds. This pricing method encourages consumers to use less electricity to avoid higher prices at higher usage levels.
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7) A firm never operates:
a) At the minimum of its average total cost curve.
b) At the minimum of its average variable cost curve.
c) On the downward-sloping portion of its average total cost curve.
d) On the downward-sloping portion of its average variable cost curve.
Correct Answer:
The correct answer is 'b'.
Explanation:
A firm never operates at the minimum of its average variable cost (AVC) curve. This is because at the minimum of the AVC curve, the firm is covering its variable costs but not its fixed costs. This means that the firm is losing money on every unit that it produces.
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8) Marginal profit is equal to:
a) Marginal revenue minus marginal cost.
b) Marginal revenue plus marginal cost.
c) Marginal cost minus marginal revenue.
d) Marginal revenue times marginal cost.
Correct Answer:
The correct answer is 'a'.
Explanation:
Marginal profit is calculated by subtracting the marginal cost from the marginal revenue. It represents the additional profit gained from producing one more unit of a good or service.
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9) If current output is less than the profit-maximizing output then which of the following must be TRUE?
a) Total revenue is less than total cost.
b) Average revenue is less than average cost.
c) Marginal revenue is less than marginal cost.
d) Marginal revenue is greater than marginal cost.
Correct Answer:
The correct answer is 'd'.
Explanation:
This is because a firm can increase its profits by producing more units of output as long as marginal revenue is greater than marginal cost. When marginal revenue is greater than marginal cost, the firm is making more money from each additional unit that it produces than it costs to produce that unit.
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10) At the profit-maximizing level of output, what is TRUE of the total revenue (TR) and total cost (TC) curves?
a) They must intersect with TC cutting TR from below.
b) They must intersect with TC cutting TR from above.
c) They must be tangent to each other.
d) They must have the same slope.
Correct Answer:
The correct answer is 'a'.
Explanation:
When a firm is operating at the profit-maximizing level of output, the total revenue (TR) curve and the total cost (TC) curve must intersect with TC cutting TR from below. This is because total profit is maximized at the point where the vertical distance between the total revenue curve and the total cost curve is the greatest, or where marginal cost equals marginal revenue.
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