Introduction to Economics MCQs | ECO401 MCQs | Set 10
Introduction to Economics MCQs | ECO401 MCQs | Set 10
MCQs (Multiple Choice Questions)
1) Suppose the first four units of an output produced incur corresponding total costs of 50, 150, 300, and 500. The marginal cost of the second unit of output is:
a) 50
b) 100
c) 150
d) 200
Correct Answer:
The correct answer is 'b'.
Explanation:
The marginal cost is calculated as the change in total cost when one additional unit is produced. In this case, the total costs for the first four units are 50, 150, 300, and 500.
The change in total cost from producing the first unit to the second unit is 150 - 50, which equals 100.
Therefore, the marginal cost of the second unit of output is: 100.
______________________________
2) Law of diminishing marginal utility indicates that the slope of the marginal utility curve is:
a) Horizontal
b) Vertical
c) Negative
d) Positive
Correct Answer:
The correct answer is 'c'.
Explanation:
______________________________
3) Assume that the total utilities for the fifth and sixth units of a good consumed are 83 and 97, respectively. The marginal utility for the sixth unit is:
b) 14
c) 83
d) 97
Correct Answer:
The correct answer is 'b'.
Explanation:
To find the marginal utility (MU), subtract the total utility (TU) of the previous quantity from the total utility of the current quantity.
Given:
Total utility for the fifth unit = 83
Total utility for the sixth unit = 97
The marginal utility for the sixth unit is calculated as: MU = Total utility of the sixth unit - Total utility of the fifth unit
MU = 97 - 83
MU = 14
Therefore, the correct answer is: 14.
______________________________
4) Suppose that the price of a pizza is $10 and price of a jeans is $30. If ratio of marginal utility of pizza to marginal utility of jeans is 1/4 then to maximize total utility, a consumer should:
a) Buy more pizzas and fewer jeans.
b) Buy fewer pizzas and more jeans.
c) Continue to buy the same quantities of pizza and jeans.
d) Spend more time consuming pizza.
Correct Answer:
The correct answer is 'b'.
Explanation:
Given the ratio of the marginal utility of pizza to the marginal utility of jeans is 1/4, a consumer can maximize total utility by equalizing the marginal utility per dollar spent on each item.
Currently, the price of a pizza is $10, and the price of jeans is $30.
For utility maximization, the consumer should aim to equalize the ratios of marginal utility to price for both goods.
The marginal utility per dollar spent on pizza is 1/10 = 0.1.
The marginal utility per dollar spent on jeans is 1/30 = 0.0333 (approximately).
To reach a ratio closer to 1/4 (0.25), the consumer should increase the spending on jeans (where the ratio is currently lower).
Therefore, to maximize total utility, the consumer should: Buy fewer pizzas and more jeans.
______________________________
5) Which of the following is NOT an assumption of ordinal utility analysis?
a) Consumers are consistent in their preferences.
b) Consumers can measure the total utility received from any given basket
of good.
c) Consumers are non-satiated with respect to the goods they confront.
d) All of the given options are true.
Correct Answer:
The correct answer is 'b'.
Explanation:
Ordinal utility analysis does not require or involve the quantification or measurement of total utility. Instead, it focuses on the ranking or ordering of preferences based on the satisfaction or happiness derived from different goods and does not involve assigning specific numerical values to this satisfaction. The other assumptions listed (a, c) are generally part of ordinal utility analysis.
______________________________
6) Assume leisure is a normal good. If income effect equals substitution effect then a wage rate increase will lead a person to:
a) Increase hours of work.
b) Decrease hours of work.
c) Not change hours of work.
d) None of the given options.
Correct Answer:
The correct answer is 'b'.
Explanation:
If leisure is a normal good, a wage rate increase will lead to an increase in the quantity of leisure demanded. This is because the income effect and the substitution effect are both positive.
The income effect is the change in the consumption of a good due to a change in income. Since leisure is a normal good, an increase in income will lead to an increase in the demand for leisure.
The substitution effect is the change in the consumption of a good due to a change in the relative prices of goods. In this case, the price of leisure has increased (since the wage rate has increased), so the consumer will substitute away from leisure and towards other goods. However, since leisure is a normal good, the income effect is greater than the substitution effect, so the overall effect is an increase in the demand for leisure.
______________________________
7) Ali initially leased one-room space and started a small day care centre with only 4 children and one staff member. But he found that the cost per child is very high. He wants to expand the centre. Which of the following will happen when Ali expand the centre?
a) Economies of scale.
b) Diseconomies of scale.
c) Decreasing returns to the labor inputs.
d) Increasing returns to the labor inputs.
Correct Answer:
The correct answer is 'a'.
Explanation:
Economies of scale refer to cost advantages that an organization or business gains when it expands its operations. As the daycare center grows and serves more children, the costs per child might decrease due to spreading fixed costs over a larger number of children, bulk purchasing, more efficient staff utilization, and increased specialization, leading to economies of scale.
______________________________
8) A graph showing all the combinations of capital and labour available for a given total cost is the:
a) Budget constraint
b) Expenditure set
c) Isoquant
d) Isocost
Correct Answer:
The correct answer is 'd'.
Explanation:
An isocost curve represents various combinations of capital and labor that can be obtained for a specific total cost. It shows the different combinations of inputs that a firm can afford to purchase with a fixed total cost, based on the prevailing input prices.
______________________________
9) An isoquant curve shows:
a) All the alternative combinations of two inputs that yield the same maximum total product.
b) All the alternative combinations of two products that can be produced by using a given set of inputs fully and in the best possible way.
c) All the alternative combinations of two products among which a producer is indifferent because they yield the same profit.
d) None of the given options.
Correct Answer:
The correct answer is 'a'.
Explanation:
Isoquants represent different combinations of inputs (such as labor and capital) that result in the same level of output or total product. They display various combinations of inputs that produce an identical level of output, allowing a firm to achieve the same output using different input combinations.
______________________________
10) L-shaped isoquant:
a) Indicate that capital and labor cannot be substituted for each other in production.
b) Is impossible.
c) Indicate that the firm could switch from one output to another costlessly.
d) Indicate that the firm could not switch from one output to another.
Correct Answer:
The correct answer is 'a'.
Explanation:
In an L-shaped isoquant, factors of production (such as capital and labor) cannot be substituted for each other in the production process to increase output. It suggests that one input is essential and cannot be replaced by the other input in the production of a particular output. The shape signifies that there's a fixed ratio between the inputs, making substitution impossible or extremely limited.
______________________________
No comments