Economics GK Quiz-8

Question: Tooth paste is a product sold under :
(1) Monopolistic Competition
(2) Perfect Competition
(3) Monopoly
(4) Duopoly
Answer: (1) Monopolistic Competition
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. There are six characteristics of monopolistic competition (MC): (a) Product differentiation; (b) many firms; (c) Free entry and exit in the long run; (d) Independent decision making; (e) market power; and (f) Buyers and
Sellers do not have perfect information. Toothpastes, toilet papers, computer software and operating systems are examples of differentiated products.

Question: If the price of Pepsi decreases relative to the price of Coke and 7-Up, the demand for
(1) Coke will decrease
(2) 7-Up will decrease
(3) Coke and 7-Up will increase
(4) Coke and 7-Up will decrease
Answer: (4) Coke and 7-Up will decrease
Price elasticity of demand (PED or Ed) is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price. A decrease in the price of a good normally results in an increase in the quantity demanded by consumers because of the law of demand, and conversely, quantity demanded decreases when price rises. So, here the decrease in price of Pepsi will increase in demand for it, while the demand for Coke and 7-Up will decrease because of no change in their price level.

Question: The demand curve shows that price and quantity demanded are
(1) directly related only
(2) directly proportional and also directly related
(3) inversely proportional and aslo inversely related
(4) inversely related only
Answer: (3) inversely proportional and aslo inversely related
Law of demand states that consumers buy more of a good when its price is lower and less when its price is higher. It states that the quantity demanded and the prices of a commodity are inversely related, other things remaining constant. That is, if the income of the consumer, prices of the related goods, and preferences of the consumer remain unchanged, then the change in quantity of good demanded by the consumer will be negatively correlated to the change in the price of the good.

Question: As output increases, average fixed cost
(1) increases
(2) falls
(3) remains constant
(4) first increases, then falls
Answer: (2) falls
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.

Question: Fixed cost is known as
(1) Special cost
(2) Direct cost
(3) Prime cost
(4) Overhead cost
Answer: (4) Overhead cost
Fixed costs are business expenses that are not dependent on the level of goods or services produced by the business. They tend to be time-related, such as salaries or rents being paid per month, and are often referred to as overhead costs. This is in contrast to variable costs, which are volume-related (and are paid per quantity produced).

Question: The demand for which of the following commodity will not rise in spite of a fall in its price?
(1) Television 
(2) Refrigerator
(3) Salt 
(4) Meat
Answer: (3) Salt 
For certain goods called necessities, demand is not related to income. Demand for salt does not increase with the increase in income & does not decrease with the decrease in income. It means that it
is irrespective of income. The demand curve slopes downward for goods like salt, but it is inelastic.

Question: In the long-run equilibrium, a competitive firm earns
(1) Super-normal profit
(2) Profits equal to other firms
(3) Normal profit
(4) No profit
Answer: (3) Normal profit
Making the assumption that the market demand curve remains unchanged, higher market supply will reduce the equilibrium market price until the price = long run average cost. At this point each firm is making normal profits only. There is no further incentive for movement of firms in and out of the industry and a long-run equilibrium has been established.

Question: Production function relates
(1) Cost to output
(2) Cost to input
(3) Wages to profit
(4) Inputs to output
Answer: (4) Inputs to output
Production function specifies the output of a firm, an industry, or an entire economy for all combinations of inputs. The relationship of output to inputs is non-monetary; that is, a production function relates physical inputs to physical outputs, and prices and costs are not reflected in the function.

Question: If total utility is maximum at a point, then marginal utility is
(1) positive
(2) zero
(3) negative
(4) positive but decreasing
Answer: (2) zero
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 marginal utility to become negative; this signifies dissatisfaction.

Question: The situation in which total revenue is equal to total cost, is known as
(1) monopolistic competition
(2) equilibrium level of output
(3) break-even point
(4) perfect competition
Answer: (3) break-even point
In economics and cost accounting, the break-even point (BEP) is the point at which cost or expenses and revenue are equal: there is no net loss or gain, and one has "broken even". A profit or a loss has not been made, although opportunity costs have been "paid", and capital has received the risk-adjusted, expected return.

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