Microeconomics - I

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MICROECONOMICS - I
• INTRODUCTION
• CONSUMER’S EQUILIBRIUM UTILITY ANALYSIS
• CONSUMER’S INDIFFERENCE CURVE ANALYSIS
• DEMAND
• PRICE ELASTICITY OF DEMAND
•
1. If the price elasticity of demand for a commodity is zero, the demand curve is
a) Parallel to the vertical axis
b) Parallel to the horizontal axis
c) Rectangular Hyperbola
d) A negatively sloped straight line
2. Consider a situation where the price of petrol in India rises suddenly due to disturbance in the
international petroleum market. How do you expect the demand curve for motor cars in India to
behave?
a) Will shift to the right
b) Will shift to the left
c) Will remain unchanged
d) Will become horizontal
3. In order to draw the Price Consumption Curve (PCC) in a two good case, we
a) Change the price of only one good
b) Change only the income of the consumer
c) Change the prices of goods in the same proportion
d) Change both income and the two prices in the same proportion
4. In a two-commodity framework, a consumers' equilibrium point corresponds to 20 units of

consumption of goods x. The concerned budget line touches the X-axis at a point where the
quantity consumed is 50 units. If consumption of x is measured horizontally and that of y
vertically, find the equilibrium quantity of y, given PX = Rs 10; PY = Rs 5
a) 50
b) 60
c) 40
d) 70
5. When the income of the consumer’s rises by 10%, the quantity of a commodity decreases from
2000 units to 1900 units. What is the income elasticity of demand for this commodity?
a) 2
b) -0.5
c) -1.5
d) -2
6. The marginal utilities of two goods X and Y for different quantity levels are given in the table
below. The prices are Px = Rs 5 and Py = Rs 10
Qx MUx MUy
1 10 15
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2 8 14
3 6 12
What should be the equilibrium purchase of goods X and Y under the Marshallian consumer
behaviour theory?
a) QX =3, QY = 1
b) Qx = 2, Qy =2
c) QX =3, QY = 3
d) QX =1, QY = 1
7. Which of the following expressions is a condition of consumer’s equilibrium in the Hicksian

indifference curve approach? (MU indicates marginal utility)
a) MUX = PY and MUY = PX
b) MUX / MUY = PX / PY
c) MUX / MUY = PY/ PX
d) MUX+ MUY = PX/ PY
8. Which of the following statement constitutes an exception to the law of demand?

a) The demand for a commodity rises with the rise in income
b) The demand for the commodity falls with a rise in the price of that good
c) The demand for a commodity falls with a rice in income
d) The demand for a commodity rises with the rise in the price of that good, other things
remaining the same
9. Assume that the quantity demanded a commodity is measured along the horizontal axis and its
price along the vertical axis. Then the market demand curve is
a) A vertical summation of all individual demand curves
b) A horizontal summation of all individual demand curves
c) Either of (A) and (B) above is acceptable
d) It is the product of all individual demand curves
10. If for an increase in the price of a commodity, there is no change in the expenditure incurred
on that commodity, then that commodity is, with respect to its price
a) Unit elastic
b) Infinitely elastic
c) Inelastic
d) Elastic
11. If two commodities are fully complementary to each other, the related indifference curves will
be
a) L-shaped
b) Convex to the origin
c) A downward –sloping straight line
d) Concave to the origin
12. If the total utility is maximum, then marginal utility becomes

a) Equal to total utility
b) Maximum
c) Zero
d) Half of the total utility
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13. The good whose demand is negatively related to real income is called
a) Inferior good
b) Normal good
c) Superior good
d) Luxury good
14. The marginal rate of substitution (MRS) measures the units of one commodity that have to be
sacrificed in order to get one additional unit of the other commodity so that
a) Total utility falls
b) Total utility remains the same
c) Total utility rises
d) Marginal utility rises
15. Study the following table:

Units consumed Total utility Marginal utility
10 136 16
11 150 7
12 162 12
13 ? 10
What are the values you should put in place of question marks?
a) 174,12
b) 172,13
c) 174,14
d) 172,12
16. In a two-commodity world with commodity X and Y, MUX = 2, PX = 15, MUY = 6. What do you
think the value of PY is if the consumer is in equilibrium?
a) 10
b) 12.5
c) 45
d) 20
17. The relation between Giffen good and inferior good is

a) All Giffen goods are inferior goods
b) All Inferior goods are Giffen goods
c) Giffen goods are a subset of inferior goods
d) Both (A) and (C) are true
18. In order to draw the ICC, we have to first

a) Shift the budget line parallelly
b) Change M, PX, and PV in three different proportions
c) Keep M constant and change PX and PY in two different proportions
d) Both (A) and (C) are true
19. Where ICC is the Income-Consumption curve, M is the money income of the consumer, PX and
PY are prices of good X and good Y.
Suppose that there is a sharp rise in the prices of petrol and diesel. How do you expect the
demand curve for cars to change (if it changes at all)?
a) It will shift to the right
b) It will shift upward
c) It will become horizontal
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d) It will shift to the left
20. A person has various options of earning on a certain day as given in the following table:
ACTIVITY INCOME
(Rs)
1 Taking classes in a college 3,000
2 Participate in a radio talk 1,000
3 Providing advice to a firm 1,500
4 Writing an article for a magazine 1,200
If she can perform only one activity, what will be the opportunity cost of teaching in a college?
a) 1,500
b) 1,200
c) 1,000
d) 3,700
21. The shift of the budget line will be parallel if:

a) Price ratios remain the same and there is a change in income
b) Price ratios vary
c) Income and price ratios both vary
d) Income and price of one commodity changes.
22. If the two commodities are perfect substitutes, the relevant indifference curve will be:
a) Negatively sloped and convex to the origin
b) Negatively sloped and concave to the origin
c) Negatively sloped straight line
d) Positively sloped.
23. Price elasticity of demand at the midpoint of a linear demand curve is:
a) Elastic
b) Inelastic
c) Unitary elastic
d) Perfectly inelastic
24. If the equation of a budget line is given by 5x + 7y = 64, the slope of the budget line will be:
a) -7/5
b) -5/7
c) 64/7
d) 64/5
25. If the metro fare in Kolkata suddenly increases by 25%, what will happen to the demand curve
for riding in a bus?
a) It will remain constant
b) It will shift to left
c) It will shift to right
d) It will be uncertain

UNIT CONSUMED TOTAL UTILITY
4 35
5 45
6 54
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7 62
What will be the shape of marginal utility curve?
a) Downward sloping
b) Horizontal
c) ‘U’ or ‘V’ shaped
d) Vertical
27. The convexity of the indifference curve implies:

a) Increasing marginal rate of substitution (MRS)
b) Constant MRS
c) Zero MRS
d) Decreasing MRS
28. In an economy with two commodities X and Y and fixed money income, MUx = 4, MUY = 10 and
PX = 12, what will be the value of PY at equilibrium?
a) 30
b) 20
c) 8
d) 4
29. When the income of the consumer rises by 10%, the quantity of a commodity decreases from
2000 units to 1900 units. What is the income elasticity of demand?
a) 2
b) -2
c) -1.5
d) -0.5
30. If the absolute value of price elasticity of demand for a commodity is one (unity) throughout
the demand curve, then the demand curve is:
a) Parallel to the horizontal axis
b) Parallel to the vertical axis
c) A rectangular hyperbola
d) Concave to the origin
31. Which of the following is not a property of indifference curve?

a) It is negatively sloped
b) It is convex to the origin
c) Indifference curves do not intersect each other
d) It is a horizontal straight line
32. Consider a situation where the price of wheat goes up steeply all of a sudden. How do you
expect the demand curve for rice to behave?
a) Will shift to right
b) Will shift to left
c) Will remain unchanged
d) Will become perfectly vertical
33. When the price of a good falls from ₹10 to Rs 8 per unit, quantity demanded increases from
1250 to 1750 units. The absolute value of price elasticity of demand for the good is:
a) 2
b) 5
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c) 8
d) 10
34. Assume that the absolute value of price elasticity of demand for a commodity is one (unity).
When the price is 24, the demand is 300 units. What amount will be demanded if price falls to ₹3?
a) 400 units
b) 300 units
c) 900 units
d) 200 units
35. The shift of the budget lines will not be parallel if

a) Price ratios remain the same.
b) Price ratios vary.
c) Income and price ratios both vary in the same proportion.
d) If the slopes of old and new budget line are same.
36.The cardinal approach to utility is associated with the name of

a) Adam Smith
b) Hicks
c) Marshall
d) Pareto.
37. If the cross-price elasticity of demand between two commodities is positive:

a) The commodities are substitutes
b) The commodities are complements
c) The commodities are unrelated
d) One of the goods is normal and the other one is inferior.
38. Change in quantity demanded refers to

a) Change in demand for a commodity due to change in income of the consumer
b) Change in demand for a commodity due to change in its price of its substitute goods
c) Change in demand for a good due to change in price of its complementary goods
d) None of the above
39. Which of the following statements is not true?

a) The price elasticity along a straight line demand curve varies from zero to infinity.
b) If the demand curve is horizontal, the price elasticity should be zero.
c) The demand curve will shift to the right if the income of the consumer rises
d) All inferior goods are not giffen, but all giffen goods are inferior
40. Cross-price elasticity of demand between good X and good Y is calculated to be +2.50. What is
the relation between two goods?
a) X and Y are substitutes.
b) X and Y are complements.
c) X is normal good while Y is the inferior good.
d) X is the inferior good while Y is the normal good.
41. The term micro and macro economy was first used by
a) Smith
b) Ragnar Frisch
c) Marshall
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d) Robinson
42. Business economics is an applied branch of

a) Natural science
b) Political science
c) Economics
d) None of these
43. The concept of elasticity of demand was developed by

a) Alfred Marshall
b) Malthus
c) Edwin Camon
d) Bentham
44. In reference of mobile and SIM card cross elasticity is

a) Negative
b) Zero
c) Positive
d) Unit
45. Which of the followings is not internal dis-economies?

a) Managerial problem
b) Labour disputes
c) Pressure on banking business
d) Limited supply of raw materials
46. The concept of consumer surplus was introduced by?

a) Marshall
b) Hicks
c. Clerk
d. Keynes
47. The concept of indifference curve was introduced by

a)Marshall
b)Hicks
c)Clerk
d)Keynes
48. Price effect =

a) income effect - substitution effect
b) income effect + substitution effect
c) substitution effect - income effect
d) none of these
49. Indifference map refers to:

a) budget line
b) aggregate of more than one indifference curve
c) price line
d) none of these
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50. Indifference curve to the right represent -

a) less satisfaction
b) more satisfaction
c) same satisfaction
d) none of these
51. The total utility is maximum when –

a) Marginal utility is positive
b) Marginal utility is negative
c) Marginal utility is zero
d) Average utility is zero
52. consumer surplus is also known as –

a) buyer surplus
b) producer surplus#
c)indifference surplus
d)elasticity of demand
53.The slope of indifference curve indicates –

a) marginal rate of substitution
b) level of indifference
c) price ratio between two commodities
d) none of these
54. When MRS increases the shape of indifference curve is –

a) horizontal
b) vertical
c) concave
d) convex
55. Change of budget curve depends on and

a) Test habits
b) consumer income, price of two products
c) preference, utility
d)imitation, household
56. When marginal utility is then total utility is

a) zero, highest
b) zero, lowest
c) highest, zero
d) lowest, zero
57. Copying the consumption habits of celebrity is known as?

a) habits
b) demonstration effect
c) preference
d) none of these
58. The larger the amount of a commodity purchased?

a) more is the marginal utility
b) less is the marginal utility
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c) either (a) or (b)
d) none of these
59. The demand for necessary goods is generally?

a) Inelastic
b) Elastic
c) perfectly inelastic
d) perfectly elastic
60. When price of normal goods decreases then demand of it increases due to?
a) income effect
b) substitution effect
c) both of (a) and (b)
d) giffen effect
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MICROECONOMICS- I
• THEORY OF PRODUCTION
• CONCEPT OF COST
• CONCEPT OF REVENUE
• MARKET: PERFECT COMPETITION
1. According to the law of variable proportion, when the average product rises, then
a) Marginal product also rises
b) Marginal product both rises and fall
c) Marginal product only fall
d) Marginal product is less than the average product
2. The total cost curve in the short run

a) Is a positively sloped straight line through the origin
b) Is U- shaped
c) Is a horizontal straight line
d) Starts with a positive intercept on the Y (cost) –axis and is positively sloped
3. Consider a production function with two inputs. If both inputs are increased by 10%, the output
increases by 13%, how will you describe the phenomenon?
a) Constant returns to scale
b) Increasing returns to scale
c) Decreasing returns to scale
d) Law of variable proportion
4. Which one of the following cost curves continuously falls with increasing output?
a) AFC
b) AVC
c) AC
d) MC
5. Which of the following is not an assumption of a perfectly competitive market model?

a) Price discrimination Innumerable buyers and sellers
b) Innumerable buyers and sellers
c) Homogeneous product
d) Everybody is price-take
6. In the Walrasian analysis, a disequilibrium situation is brought back to equilibrium through

a) Adjustment in price and quantity
b) Adjustment in price
c) Adjustment in quantity
d) By imposing a tax
7. In perfect competition
a) Total Revenue = Average Revenue
b) Average Revenue >Marginal Revenue
c) Marginal Revenue >Average Revenue
d) Average Revenue = Marginal revenue
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8. Study the following table.

L 0 1 2 3 4 5 6
Q 0 10 23 37 48 58 67
Where,
L = Labour Employed
Q = Quantity of Output
We can say that there is:
a) First decreasing then increasing marginal product
b) First decreasing and then constant marginal product
c) First increasing and then decreasing marginal product
d) Constant marginal product throughout
9. Let the total cost of producing different units of a product be as follows:

Q 0 1 2 3 4 5
TC(Rs) 10 18 24 29 36 45
Calculate MC and AC for 5 units of Q.
a) Rs 9 and Rs 9 respectively
b) RS 9 and Rs 10 respectively
c) Rs 10 and RS 9 respectively
d) None of these
10. The LAC Curve is usually

a) First rising and then falling
b) Upward rising throughout
c) First rising and then flat throughout
d) First falling and then rising
11. A perfectly competitive firm is in short equilibrium when

a) AC = MC
b) P= MC and MC is rising
c) P =AC and AC is falling
d) P = AC and AC is falling
12. A perfectly competitive firm will achieve ‘break-even when

a) P=min AC
b) P=Min AVC
c) P=AFC
d) MC=AVC
13. The following data are provided about a perfectly competitive firm
Q 1 2 3 4 5 6
AVC 10 9 8 9 10 11
AC 190 99 68 54 46 41
At which output level will the firm have its shut-down point?
(Assuming an appropriate price)
a) Q=6
b) Q=5
c) Q=3
d) None of these
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14. Which of the following condition most accurately describes the long-run equilibrium of a
perfectly competitive firm?
a) P = LMC
b) P = LAC
c) P = LAC = LMC
d) P = AFC
15. If the government offers a lump-sum subsidy on a product

a) The demand curve will shift to the left
b) The supply curve will shift to the left
c) The supply curve will shift to the left and the demand curve will shift to the right
d) Either the supply curve the demand curve will shift to the right
16. In the face of a perfectly inelastic supply curve, a rightward shift of the demand curve will
produce
a) A rise in both price and quantity
b) A rise in price with unchanged quantity
c) A rise in price and fall in quantity
d) Unchanged price and rise in quantity
17. In a perfectly competitive market; a firm

a) Is a price taker, as well as a quantity taker
b) Is a price taker, but can determine its own output level
c) Is a price maker, but can determine its own output level
d) Is a price maker, but a quantity taker
18. In a perfectly competitive market, when the government imposes a sales tax , then in general
a) Consumer surplus decreases and producer surplus increases
b) Consumer surplus increases and producer surplus decreases
c) Consumer surplus decreases and producer surplus decreases
d) Consumer surplus increases and producer surplus increases
19. In a perfectly competitive market, the magnitude of elasticity of the demand curve faced by a
firm is
a) Equal to one
b) Zero
c) Any number between 0 and 1
d) Infinity
20. In a perfectly competitive market, the MR curve

a) Is a horizontal straight line and equal to AR
b) Is a horizontal straight line and unequal to AR
c) Is a straight line through the origin
d) Lies between the AR curve initially, and above the AR curve thereafter
21. The shutdown point is

a) The minimum point of the AC curve
b) The minimum point of the MC curve
c) The point at which AVC is the highest
d) The minimum point of the AVC curve
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22. If there is super normal profit sometime in the long run under perfect competition, we expect
to see
a) Entry of many firms
b) No entry and exit
c) Exit of many firms and the entry of many firms
d) The entry of a few firms but exit of many firms
23. A firm under perfect competition operates (in equilibrium in the long run) at
a) The minimum point of the long-run average cost (LAC) curve
b) The downward-sloping portion of the long-run marginal cost (LMC) curve
c) The upward-sloping portion of the LAC curve
d) The minimum point of the LMC curve.
24. In the long run under perfect competition, the following will not be applicable
a) Free entry and exit of firms
b) Profit will be normal
c) The individual firms face downward-sloping demand curve
d) Both (A) and (B)
25. When the demand curve is downward - sloping and the supply curve is upward - sloping, then
the equilibrium is
a) Stable in both Walrasian and Marshallian analysis
b) Unstable in both Walrasian and Marshallian analysis
c) Unstable in Walrasian analysis but stable in Marshallian analysis
d) Unstable in Marshallian analysis but stable in Walrasian analysis
26. The short-run supply curve of a firm under perfect competition is

a) The entire MC curve
b) Only the upward sloping portion of the MC curve
c) The upward-sloping portion of the MC curve starting from the minimum point of the AVC curve
d) The upward-sloping portion of the MC curve starting from the minimum point of the AC curve
27. Which of the following is not 'U' shaped?

a) Marginal cost curve
b) Average fixed cost curve
c) Average variable cost curve
d) Average cost curve

L 0 1 2 3 4 5 6
Q 0 10 22 38 47 55 62
Where L –Labour employed, Q –Quantity of output, we can say that there is
a) First decreasing and then increasing average product
b) First decreasing and then constant marginal product
c) First increasing and then decreasing average product
d) Constant average product throughout
29. Given that the wage rate (w), rental (r), and Marginal product of labour (MPL) are as follows: w
= 5, r = 40 MPL = 16
What do you expect the value of MPK will be if the producer is in equilibrium?
a) 2
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b) 4
c) 16
d) 128
30. Let the total cost (TC) of producing different units of a product be as follows:
Q 0 1 2 3 4 5
TC(Rs) 20 36 48 58 72 90
b) Rs 14 and Rs 18 respectively
c) Rs 18 and Rs 18 respectively
d) Rs 15 and Rs 24 respectively
31. When average product (AP) of a factor rises, the marginal product (MP) of the factor will be:
a) Greater than AP
b) Less than AP
c) Equal to AP
d) Positive and increasing
32. If the price of the commodity alone increases, what will be its impact on consumer surplus?
a) Consumer surplus will increase
b) Consumer surplus will remain unchanged
c) Cannot be determined.
d) Consumer surplus will decrease
33. The shape of the Average Fixed Cost (AFC) curve will be:
a) Horizontal
b) Rectangular Hyperbola
c) Positively sloped
d) 'U' shaped
34. At the point of equilibrium, the marginal cost curve of a perfectly competitive firm will be:
a) Negatively sloped
b) Vertical
c) Horizontal
d) Positively sloped.
35. The condition of 'shut down' in a perfectly competitive market is:

a) Price Average Cost
b) Price = Minimum Average Variable Cost
c) Price = Fixed Cost
d) Total Revenue > Total Cost.
36. In the long run in perfect competition, the firms will earn:
a) Super-normal profit
b) Loss
c) Normal profit
d) None of these
37. The relation between price (P), average revenue (AR) and marginal revenue (MR) under
perfect competition is:
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a) AR>MR =P
b) AR = P > MR
c) AR < MR = P
d) AR = MR = P
38. The expansion path is the locus of the producer equilibrium points:
a) When only the price of labour changes
b) When only the price of capital change
c) When the rate of change in price of capital is greater than the rate of change in the price of labour
d) When the isocost line shifts parallelly.
39. If the government imposes a sales tax on the seller, then, under usual demand-supply
conditions, compared to the pre-tax situation:
a) the price paid by the buyer will rise
b) the price received by the seller will fall
c) the equilibrium quantity will fall
d) all of A, B, C.
40. Let the total cost (TC) of producing different units of a product be as follows:
Q 0 1 2 3 4 5
TC(Rs) 10 19 26 31 35 45
b) Rs 9 and Rs 10 respectively
c) Rs 10 and Rs 9 respectively
d) Rs 9 and Rs 8 respectively
41. The condition of long – run equilibrium of a perfectly competitive firm is:
a) P = LAC =LMC
b) P > LAC =LMC
c) P < LAC =LMC
d) P = LAC < LMC
42. The equation of the marginal cost (MC) curve of a competitive firm is given by MC = 3Q 2 + 5Q
+ 10, where Q refers to unit of output produced. The equilibrium output is 5 units. What will b e
theequilibrium price?
a) Rs 50
b) Rs 110
c) Rs 18
d) Rs 10
43. At the minimum point of Average cost curve, which one of the following is true?
a) AC= MC= AVC
b) AC > AVC > MC
c) AC= MC > AVC
d) AVC < AC <MC
44. Which of these following statements about Total fixed cost (TFC) is incorrect?
a) TFC is fixed irrespective of the level of output produced
b) TFC is a horizontal straight line
c) Employment of the variable factors affect TFC
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d) TFC is the sum total of the cost incurred by the firm for the usage of fixed factors.
45. When the supply curve is perfectly inelastic, a rightward shift in the demand curve will
produce
a) A rise in both price and quantity
b) A rise in price with unchanged quantity
c) A rise in price and fall in quantity
d) Unchanged price and rise in quantity.
46. The usual LAC curve:

a) Envelopes short run average cost (SAC) curves
b) First rises, then falls
c) Rises throughout
d) Always lies below than SAC curves
47. At the point of inflexion of total product curve:

a) Marginal product is maximum
b) Average product is maximum
c) Total product is maximum
d) Marginal product is zero
48. Assume that the firm has a fixed budget to be completely spent on purchase of two inputs for
producing a single output. What is the name of the locus of different combinations of the two
inputs which can be purchased with the aforesaid budget?
a) Isoquant
b) Iso cost line
c) Envelope curve
d) Ridge line
49. The shape of average fixed cost (AFC) curve is

a) Downward sloping straight line
b) Upward sloping curve
c) Rectangular hyperbola
d) Horizontal straight line.
50. Which one of the following costs is not relevant to the long-run?
a) Marginal cost
b) Average cost
c) Fixed cost
d) Variable cost.
51. What is the shape of the MR curve of a perfectly competitive firm?

a) Upward sloping
b) Downward sloping
c) Vertical straight line
d) Horizontal straight line
52. Which of the following is not a feature of perfect competition?

a) Single seller
b) Homogeneous product
c) Free entry and exit
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d) Perfect knowledge.
53. If a specific sales tax of ₹ 10 /- is imposed in perfectly competitive market, how will the market
supply curve behave?
a) Shift parallelly downward
b) Shift parallelly upward
c) Remain unchanged
d) Become vertical.
54. In the context of Marshallian demand theory, the marginal utility of money is:
a) Diminishing
b) Increasing
c) Zero
d) A positive constant.
55. What is the total cost of production of 300 units if fixed cost is ₹10,000 and average variable
cost is ₹20?
a) ₹19,000
b) ₹20,000
c) ₹16,000
d) ₹30,020
56. The minimum point of Marginal Cost (MC) curve lies:

a) To the left of the minimum points of both AVC curve and AC curve
b) To the right of the minimum points of both AVC curve and AC curve
c) To the left of the minimum point of AVC curve, but to the right of the minimum point of AC
curve
d) To the right of the minimum point of AVC curve, but to the left of the minimum point of the
AC curve.
57. When Average Cost (AC) is rising, the Marginal Cost (MC) is:
a) Falling
b) Greater than AC
c) Less than AC
d) Equal to AC.
58. A perfectly competitive firm making a loss in the short-run will stop production when:
a) P < AVC
b) P> AVC
c) P>AC
d) P=AC
59. In the long-run, a firm under perfect competition earns:

a) Incurs normal loss
b) Earns supernormal profit
c) Earns normal profit
d) No definite conclusion can be drawn.
60. Let the price faced by a perfectly competitive firm be equal to ₹7. Some data on short-run
MC are given below:
Q 10 11 12 13 14 15
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MC (Rs) 7 6 5 6 7 8
At what output level can the firm expect to maximize its profit?
a) 10
b) 12
c) 14
d) No definite conclusion can be drawn.
61. The short-run supply curve of a firm under perfect competition is:
a) The upward sloping portion of the MC curve lying above the minimum point of the AV
curve
b) The upward sloping portion of the MC curve lying above the minimum point of the AC curve
c) The entire upward portion of the MC curve
d) Both the downward and upward sloping portions of the MC curve
62. In the Marshallian framework, a disequilibrium situation is brought back to equilibrium

through:
a) Adjustment of both price and quantity
b) Adjustment of either price or quantity
c) Adjustment of quantity.
d) Adjustment of price
63. A producer always tries to produce in

a) Stage-I level of production
b) Stage-II level of production
c) Stage-III level of production
d) Stage-I and III level of production.
64. The long-run average cost (LAC) curve can be tangent to the minimum points of the short run
average cost (SAC) curves:
a) Always
b) Never
c) Only at the minimum point of its own
d) Often.
65. Which of the following statements is not consistent with a perfectly competitive market?
a) Price inflexibility
b) Constant returns to scale
c) Restricted entry
d) Perfect knowledge
66. The short run supply curve of a firm under perfect competition is its:
a) Upward portion of the marginal cost curve above the minimum average fixed cost curve
b) Upward portion of the marginal revenue curve above the minimum average fixed cost curve
c) Upward portion of the marginal cost curve above the minimum average variable cost
curve
d) Upward portion of the marginal revenue curve above the minimum average revenue curve
67. According to the law of variable proportions. when the units of variable factor, labour are
increased, keeping the capital fixed, the marginal product of labour will
a) First increase then decrease.
b) First decrease then increase
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c) Increase continuously.
d) Remain the same.
68. The locus of the consumer equilibrium points, when income of the consumer changes and
prices of the good remain constant, is known as
a) Expansion path
b) Ridge lines
c) Income-Consumption curve
d) Price-Consumption curve.
69. A producer stays at a point on the isocost line where MPL = 6, MPK = 30, w = 12 and r = 84
where w= price of labour, r = price of capital, MPL =marginal productivity of labour, and MPK =
marginal productivity of capital. What will the producer do to attain the equilibrium?
a) Employ more labour and sacrifice capital
b) Employ more capital and sacrifice labour
c) Employ more labour and capital at the same rate
d) Reduce labour and capital at the same rate.
70. At the Shut-down point, which one of the following is true?

a) Price > AC =MC> Min AVC
b) AC > Price= Min AVC=MC
c) AC =Price > AVC > MC
d) AVC < AC < MC.
71. When Average Product of the variable factor is positive but falling, then
a) It refers to stage-I and Marginal product > Average product
b) It refers to stage-II and Marginal product < Average product
c) It refers to stage-I or III and Marginal product > Average product
d) It refers to stage-II or III and Marginal product < Average product.
72.Which of the following statements about Marginal Cost (MC) is incorrect?

a) MC passes through the minimum point of Average Cost curve.
b) MC passes through the minimum point of Average Variable Cost curve.
c) When total cost rises at the increasing rate MC will be upward sloping.
d) If Total Cost is a straight line through origin, MC will be usual 'U' shaped.
73. In a perfectly competitive market, the type of decision a firm has to make is different in the
short-run than in the long-run. Which of the following is an example of a perfectly competitive
firm's short-run decision?
a) What price to change buyers for the product?
b) Whether or not to enter or exit in industry
c) The profit maximizing level of output
d) How much to spend on advertising and sales promotion?
74. In a competitive market, if the price elasticity of demand is 1, what is the value of marginal
revenue (MR) and total revenue (TR) respectively?
a) MR = Maximum, TR = 0
b) MR = Maximum, TR = Maximum
c) MR = 0, TR= Maximum
d) MR = Minimum, TR = Maximum.
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75. If the demand is perfectly inelastic and the supply curve is normal, an imposition of tax leads
to
a) Bearing the burden of the entire tax by the consumer.
b) Bearing the burden of the entire tax by the producer.
c) Partial bearing of the burden of the tax by the producer.
d) No change regarding the burden of the tax.
76. The price of a product under perfect competition is 10. The marginal cost function is given by
MC = 2Q-8. What is the value of equilibrium output?
a) 4
b) 10
c) 9
d) 18.
77. Law of variable proportion is applicable in:

a) Short-run
b) Long-run
c) Short and long –run
d) None of these
78. Production function means:

a) The relation between market price and sales
b) The relation between total revenue and sales
c) The technical relationship between input and output
d) The relation between input and profit
79. The cost which does not change with the volume of output
a) Marginal cost
b) Variable cost
c) Fixed cost
d) Average cost
80. The long run average cost curve is

a) ‘U’ shaped but flatter
b) ‘U’ shaped but sharp
c) Concave to the origin
d) Convex to the origin
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MONOPOLY
1. Monopoly means a market with
a. One seller
b. Two sellers
c. Infinite number of sellers
d. More than one but less than twenty sellers
2. Natural monopoly refers to a situation when

a. Monopoly firm is created by restricted entry
b. Government has a monopoly
c. A firm is enjoying economies of scale over a large range of output
d. A firm has monopoly in natural resources
3. Which of these features is not suited to monopoly?

a. There is no close substitute
b. The firm is a price taker
c. The firm cannot set both the price and output simultaneously
d. There is no difference between the price and output
4. The demand curve faced by the monopolist is

a. Upward sloping
b. Horizontal
c. Vertical
d. Downward sloping
5. If the monopolist faces a linear demand curve its slope will be

a. Same as the slope of MR curve
b. Double of the slope of MR curve
c. Half of the slope of the MR curve
d. One-fourth of the slope of the MR curve
6. Which of these curves can have a negative value?

a. AR
b. TR
c. MR
d. AP
7. In a monopolistic set-up total revenue curve

a. Is a straight line through the origin
b. Is horizontal
c. Is vertical
d. Is initially increasing and after reaching a maximum, falling.
8. In a monopolistic market, AR > MR

a. For all levels of output
b. For all positive output level
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c. Only at the equilibrium output level
d. Only at the output level corresponding to inelastic portion of the demand curve
9. In the short run, a monopoly firm

a. Breaks even
b. Incurs a loss
c. Makes a profit
d. Any of the above
10. A monopolist always sets the price at a portion of the demand curve where
a. e = 1
b. e < 1
c. e > 1
d. e < 0
11. the short run equilibrium condition of a monopoly firm is as follows

a. MC = MR and MC cuts the MR curve from below
b. MC = MR and MC must be positively sloped at the equilibrium point
c. MC = MR and slope of MC > slope of MR
d. P = MC = MR and slope of MC = slope of MR
12. If a monopolist incurs losses in the short run, then in the long run
a. He will stay in the business
b. He will leave the business
c. He will break even
d. Any of the above situation is possible
13. Lerner index refers to

a. Second degree price discrimination
b. Degree of monopoly power
c. A situation when e = 1
d. Deadweight loss under monopoly
14. A monopolist
a. Can earn only supernormal profits in the long run
b. Can earn both normal and supernormal profits in the long run
c. Can earn only normal profits in the long run
d. Can suffer from losses in the long run
15. ‘Take it or leave it’ pricing is applicable in

a. First degree price discrimination
b. Second degree pricing discrimination
c. Third degree pricing discrimination
d. All types of discrimination
16. Block pricing is applicable to

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b. Second degree price discrimination
c. Third degree price discrimination
17. Which of the following conditions is not essential for price discrimination to occur?
a. There should be more than one sub markets
b. There can be reselling of the products
c. There should be block pricing
d. There should be different price elasticities in different sub markets
18. The price discrimination will be profitable only if

a. The price elasticities of elements in different sub markets differ
b. The markets are subdivided
c. There is no reselling
d. The consumers are peculiar
19. In monopoly the MR curve is

a. Always above the AR curve
b. Always below the AR curve
c. Always coincides the MR curve
d. Always greater than MR curve except from the starting point
20. In monopoly
a. Both price and output and greater than perfectly competitive price and output in equilibrium
b. Both price and output are lesser than perfectly competitive price and output in equilibrium
c. Price is greater but output is lower in equilibrium compared to competitive equilibrium
d. Price is lesser but output is greater in equilibrium compared to competitive equilibrium
21. Which of the statements regarding monopoly is not true?

a. Price discrimination is possible but does not imply that it is profitable as well
b. If the monopoly power is infinite then the price elasticity of demand must be zero
c. The monopolist always sets the price at the output level corresponding to the elastic portion of the
demand curve
d. The supply curve of the monopolist is positively sloped
22. In the long run equilibrium the monopolist make pure profits due to
a. Low average cost
b. Advertisement
c. Blocked entry
d. High selling prices
23. If e < 1, what will be the value of MR in monopoly?

a. 1
b. 0
c. < 0
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d. > 0
24. When the demand curve is elastic (e > 1) MR will be

a. Negative
b. Positive
c. 1
d. 0
25. If p = 10 and e = 0.5, the MR will be

a. 0
b. -1
c. 5
d. -10
26. If the price elasticity of demand rises, the degree of monopoly power
a. Falls
b. Rises
c. Remains constant
d. Initially rises then falls
27. Greater the divergence between P and MC

a. Greater will be the degree of monopoly power
b. Lesser will be the degree of monopoly power
c. Outcome will be uncertain
d. There will be no impact on the degree of monopoly power
28. What is the degree of monopoly power in a perfectly competitive market?

a. 0
b. 1
c. > 0 but < a
d. a
29. Which of these statements is true?

a. A monopoly equilibrium cannot occur at the falling portion of the MC curve
b. First degree price discrimination is also known as block pricing
c. Monopoly ensures optimal allocation of resources
d. A monopolist never suffers from losses in the short run
30. In which of these discriminations the demand curve coincides with the marginal revenue curve?
31. The entire amount of consumer surplus can be extracted in which of these price discrimination strategies?
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d. None of the above
32. In third degree price discrimination

a. Monopolist always makes profit
b. Different prices are charged for different group of customers
c. Entire amount of consumer surplus can be extracted by the monopolist
d. The demand elasticities of the sub markets may be equal
33. In case of a discriminating monopolist if the elasticities in the 1st and the 2nd market are 3/2 and 2 respectively
and the price in the first market is 5, what will be the price in the second market?
a. 7.5
b. 5
c. 15
d. 3.4
34. In monopoly market the firm is:

a. Price taker
b. Price maker
c. Cost determinant
d. Price and quality determinant
35. In monopoly if price elasticity of demand is relatively inelastic (e<1) then:

a. MR>0
b. MR=0
c. MR=P
d. MR<0
36. In equilibrium of a monopoly firm in the long run:

a. There may be normal profit and may be super normal profit
b. There will be normal profit only
c. There will be loss only
d. There will be super normal profit only
37. Social cost of monopoly arises because in this market:

a. P>MC
b. P<MC
c. P=MC
d. P=AC
38. In monopoly market, the supply curve:

a. Is upward rising
b. Is downward sloping
c. Is horizontal
d. Is unique
39. Power of monopoly becomes zero when

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a. P < MC
b. P > MC
c. MR = P
d. P = MC
40. Which of the following is not a feature of a monopoly market?

a. Single seller
b. Differentiated product
c. No unique supply curve
41. If in monopoly market AR is 50 and MR is 25, then the absolute value of elasticity of demand
a. 1
b. 2
c. 1/2
d. 0
42. If the price elasticity of demand in the monopoly market is 3/2, the degree of monopoly power is equal to
(a) 3/2
(b) 2/3
(c) 1/3
(d) -3/2
43. In monopoly market, with downward sloping straight line demand curve
(a) slope of the AR curve is 1/3rd of slope of MR curve
(b) slope of the MR curve is 1/2 of the slope of the AR curve
(c) slope of the AR curve is 1/2 of the slope of the MR curve
(d) slope of the MR curve is 1/2 of the slope of the TR curve
44. Which of the following is the profitability conditions of price discrimination?

(a) e1 > e2, MR1 > MR2
(b) e1 = e2, MR1 < MR2
(c) e1 ≠ e2, MR1 = MR2
(d) e1 = e2, MR1 ≠ MR2
45. In monopoly market, price is always

a. equal to MC
b. greater than MC
c. less than MC
d. less than MR
46. The short run equilibrium under monopoly occurs at

a. rising portion of MC only.
b. Falling portion of MC only.
c. Rising portion of MR only.
d. Horizontal portion of MC
47. In monopoly market which of the following is true?

a. There is only one seller.
b. There is barrier to entry of new firms.
c. Both AR and MR curves are downward and MR curve lies below the AR curve.
d. All of the above.
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48. Consider the following table:

Units of factor Daily wage rate TR AR MR
(Rs)
1 400 400 400 400
2 400 800 400
3 400 400
What would be the missing values of TR, AR and MR?
a. 1200, 400, 400

b. 400, 800, 1200
c. 800, 400, 1200
d. 1200, 800, 400
49. Which of the following is not a condition for price discrimination?

a. Existence of different sub markets
b. Government intervention
c. Distance and entry restriction
50. If e = 2 and P= Rs 5, what would be the value of MR?

a. 10
b. 2.5
c. 7.5
d. 0
51. If MR is zero for all levels of output, TR curve will be?

a. Parallel to the horizontal axis
b. Straight line passing through the horizon
c. Inverted U

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Guiding You Today For a Better Tomorrow Aaditya Gupta Classes

4. In a two-commodity framework, a consumers' equilibrium point corresponds to 20 units of

7. Which of the following expressions is a condition of consumer’s equilibrium in the Hicksian

8. Which of the following statement constitutes an exception to the law of demand?

12. If the total utility is maximum, then marginal utility becomes

15. Study the following table:

17. The relation between Giffen good and inferior good is

18. In order to draw the ICC, we have to first

d) It will shift to the left

21. The shift of the budget line will be parallel if:

26. Study the following table:

27. The convexity of the indifference curve implies:

31. Which of the following is not a property of indifference curve?

35. The shift of the budget lines will not be parallel if

36.The cardinal approach to utility is associated with the name of

37. If the cross-price elasticity of demand between two commodities is positive:

38. Change in quantity demanded refers to

39. Which of the following statements is not true?

42. Business economics is an applied branch of

43. The concept of elasticity of demand was developed by

44. In reference of mobile and SIM card cross elasticity is

45. Which of the followings is not internal dis-economies?

46. The concept of consumer surplus was introduced by?

47. The concept of indifference curve was introduced by

48. Price effect =

49. Indifference map refers to:

50. Indifference curve to the right represent -

51. The total utility is maximum when –

52. consumer surplus is also known as –

53.The slope of indifference curve indicates –

54. When MRS increases the shape of indifference curve is –

55. Change of budget curve depends on and

56. When marginal utility is then total utility is

57. Copying the consumption habits of celebrity is known as?

58. The larger the amount of a commodity purchased?

59. The demand for necessary goods is generally?

2. The total cost curve in the short run

5. Which of the following is not an assumption of a perfectly competitive market model?

6. In the Walrasian analysis, a disequilibrium situation is brought back to equilibrium through

8. Study the following table.

9. Let the total cost of producing different units of a product be as follows:

10. The LAC Curve is usually

11. A perfectly competitive firm is in short equilibrium when

12. A perfectly competitive firm will achieve ‘break-even when

15. If the government offers a lump-sum subsidy on a product

17. In a perfectly competitive market; a firm

20. In a perfectly competitive market, the MR curve

21. The shutdown point is

26. The short-run supply curve of a firm under perfect competition is

27. Which of the following is not 'U' shaped?

28. Study the following table:

35. The condition of 'shut down' in a perfectly competitive market is:

46. The usual LAC curve:

47. At the point of inflexion of total product curve:

49. The shape of average fixed cost (AFC) curve is

51. What is the shape of the MR curve of a perfectly competitive firm?

52. Which of the following is not a feature of perfect competition?