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Q.

No
.

Question

ActualAnswer

SelectedAnswer

Marks
obtained

1.

The policy of Government Licensing generally


resultsinhighpriceregime.Thishappensbecause

Potential
competition for firms
isthwarted

Firms control the


supply of critical raw
material

2.

Assumethatthe salestaxfor a product isincreased.


The producer will bear a higher burden of the
increasedcostwhen

the
demand
elasticity
>
the
supplyelasticity

the
demand
elasticity = supply
elasticity

3.

Patents are designed to reward innovative


companies with supernormal profits.Underwhichof
these conditions it isunlikelyforthefirmwithpatent
toearneconomicprofits

High cost of
enforcingpatents

Highaveragecosts

4.

The featurethat distinguishescompetitive Oligopoly


fromothermarketstructuresisthat

The firm's demand


curve incorporates
therivals'reaction

The firm's demand


curve incorporates
therivals'reaction

5.

A monopolist is generallyabletoearnsupernormal
profits.Thishappensbecause

Alloftheabove

P>MC

6.

Amonopolistexercisesmarketpowerwhen

P>MC

P>MC

7.

For a discriminating monopolist operating in two


market segments (M1andM2),profitsare maximized
at the output where CMR = MC. Assuming the price
elasticities for M1 and M2 to be 3 and 0.5
respectively,thenthepricechargedin

M1<M2

M1>M2

8.

Government subsidy is justified under which of the


followingsituations

market price is fixed


belowmarginalcost

market price is fixed


belowmarginalcost

9.

Under competitive market conditions, if the market


price is equal to minimum AC then the firm will be
earning:

Normalprofits

Supernormalprofits

10.

In a kinked demand model of Oligopoly, a firm's


price and output policies is based on which of the
following

Refrain from cutting


priceindependently

Pricediscrimination

11.

When the cost of supply increase for a Monopolist


(i.e., Average cost curve shifts up) thenwhichof the
followingholdstrue

an increase in price
and a decrease in
quantitysold

an increase in price
but same quantity
sold

12.

Whichofthefollowingindicateshigher supernormal
profitsforamonopolist

Alloftheabove

Alloftheabove

13.

Price discrimination is followed when markets are


segmented.Thepricingimplicationofthiswouldbe

The priceelasticities
for
the
market
segments
would
differ

The priceelasticities
for
the
market
segments
would
differ

14.

A monopolist is considered as a 'Price Maker'. This


wouldimplythataMonopolisthas

Discretion in fixing
priceorquantity

Discretion in fixing
priceandquantity

15.

In the long run, all firms in a competitive market


earnonlynormalprofits.Thisisbecause:

Both(a)and(b)

Either(a)or(b)

16.

In a competitivemarketstructure,twofirms,namely
A & B earn varying profits.Assume Firm B earns a
profit of US$ 10,000 while that of Firm A is
US$30,000.Thisdifferenceinprofitsarisesbecause:

The average cost of


Firm A is less than
thatofFirmB

The average cost of


Firm A is less than
thatofFirmB

17.

In a monopolistic market, a firm exercises limited


discretioninsettingprices.Thishappensbecause

Firms
practice
product
differentiation that
are
imperfect
substitutes

Firms compete only


onpricefactors

18.

In Oligopoly, when firms have equal market share


and different costs, the preferred priceoutput
strategywouldbebasedonwhichofthefollowing.

Collusion

Collusion

19.

Which of the following represents


characteristicsofacompetitivemarket

alloftheabove

alloftheabove

20.

In a monopolistic market structure, which of the


following would increase the ability of the domestic
firmstoraisepricesandprofitmargins

customer
recognition of higher
quality and service
standards

customer
recognition of higher
quality and service
standards

Q.No
.

Question

ActualAnswer

SelectedAnswer

Marks
obtained

1.

Arightwardshiftof thesupply curveofa firmwould


meanwhichofthefollowing

fall in the variable


costs

rise in the variable


costs

2.

A rise in the worker productivity will result inwhich


ofthefollowing

Alloftheabove

Alloftheabove

3.

Consider a bicycle company that decides to


increase the production of bicycles in a given year.
The relevant costforthis decisionwouldbewhichof
thefollowing

Incrementalcost

Totalcost

4.

In the business decision framework, total costs


coverwhichofthefollowing

Alloftheabove

Cost
of
all
purchasedinputs

5.

A cost function provides quantitative estimates of


costs at different output levels.A typical short run
averagecostcurveisUshaped.Thisisbecause

Average variable
costs and average
productivity
are
inverselyrelated

Marginal costs rise


asoutputincreases

6.

When a firm's production in the short run


corresponds to the falling part of the AC curve then
thefirmis

Operating under
excesscapacity

Operating under
excesscapacity

7.

Assume currentmarketconditionstobe thatofhigh


demand,say for bicycles.To remain profitable,the

Alloftheabove

Alloftheabove

the

TotalCorrect
Answers

bicycle manufacturer will increase production even


when
8.

Economies of scope exist when the cost of joint


production is less than the cost of producing
products separately.Which of the following isnotan
exampleofscopeeconomies

Horizontal
integration

Horizontal
integration

9.

The pricing of loss minimizing firm will correspond


towhichofthefollowing

P>AVC

P>MC

10.

Consider a situation where a firm decides to stop


production.Which of the following indicates thecost
implicationsfornotbeinginproduction

Fixedcost

Fixedcost

11.

Consider the following.Suppose people place a


value on time spent traveling equal to 25% of their
average wage and are willing to pay a premium of
25% for better quality of travel.Using this
information, a bus service company prices its
services 40% higher than the other companies by
assuring on time and high quality service.The
principle used by the company is basedon whichof
thefollowing

OpportunityCost

MarginalCost

12.

Assume that strong demand conditionsare likelyto


persist infutureaswell.Whichof thefollowingwould
beappropriateforaprofitmaximisingfirm.

Expandplantsize

Increase production
in the rising part of
the marginal cost
curve

13.

An upward sloping supply curve defines the


relationship betweenpricesandquantitysuppliedby
the firm.This relationship is defined by which of the
following

Marginal costs rise


asoutputincreases

Marginal costs rise


asoutputincreases

14.

To assess the physical limitation on the ability of a


company to increase production, say a bicycle
company,whichofthefollowingcostisrelevant

Fixedcost

Averagecost

15.

When MES is largerelativetoindustry demandthen


itleadsto

Monopolymarket

Monopolymarket

16.

Consider the following LRAC. Under increasing


industry demand, which of the following would be a
relevantoptionforthefirm

Anyplantsize

Smallsizeplant

17.

MES definestheoptimumscaleofoperation/sizefor
a firm.This is becausetheminimumpointinLRACis
tangentialtotheSRACatthe

Minimum part of
SRACcurve

Falling part of SRAC


curve

18.

When a firm's outputislow,unit costsfallasoutput


rises.Thishappensbecauseof

Increasingreturnsto
variableinput

Decreasing returns
tovariableinput

19.

When transaction costs (like transportation costs)


are high, the MES reduces relative to industry
demand. The implications of this for a profit
maximizingfirmwouldbe

Small production
facilities closer to
market

Small production
facilities closer to
market

20.

In the short run,cost efficiency in production is


achieved when the production corresponds to
minimum AC.Under competitive condition,if the
market price is equal to minimum AC then the firm
willbeearning

Normalprofits

Incurlosses

TotalCorrect
Answers

.No.

Question

ActualAnswer

SelectedAnswer

Marks
obtaine
d

1.

Technological improvements can result in


higher output and productivity. This is reflected
inwhichofthefollowing:

both(a)and(b)

upwardshiftofthe
TPcurve

2.

Intheproductionfunctionframework,efficiency
in production is defined by which of the
following:

Minimum input
requirement for a
given level of
output

Minimum input
requirement for a
given level of
output

3.

In the short run productionfunction,Capital(K)


is fixed input and Labour (L) is variable input.
Conceptually, fixed input in production activity
implies

Both(a)and(b)

Both(a)and(b)

4.

In business most feel that CEOs are overpaid.


This situation corresponds to which of the
following

MRPL<PL

MRPL<PL

5.

Most companies offer annual increments to


their employees/executives based on a detailed
performance appraisal.This practiceisbasedon
whichofthefollowingeconomicconcept

Marginal
productivity

Marginal
productivity

6.

In small scale operation an employee performs


differentand diversetasks.Underthis condition,
it is difficult for workers to attainhigh degree of
proficiency. This is reflected in which of the
following:

Operating below
theAPLcurve

Operating in the
rising
part
of
APLcurve

7.

In the long run, all inputs are variable.


Conceptually,thiswouldmeanthat:

A firm's output
capability
is

Alloftheabove

increased
or
decreased
by
alteringtechnology
8.

Consider afirm operatingaplantof a givensize


with fixed capital. As the quantity of variable
input is increased, diminishing marginalreturns
takesplace.Thishappensbecause:

More of variable
inputs relative to
fixed inputs are
used

The quality of
variable
input
decreases as more
production takes
place

9.

In most Governmentoffices,employeesreceive
annual fixed increments. Such a practice, it is
said,leadstoinefficiencies.Thisisbecause

Wages paiddo not


correspond
to
marginal
productivity

Wages paiddo not


correspond
to
marginal
productivity

10.

A profit maximizing firm will continue to use


more of the Variable input (andthereby increase
output) even when it is operating on the falling
part of APL. This is possible under whichofthe
followingconditions

MRPL>PL

MRPL>PL

11.

Consider a firm operating at full capacity. This


correspondstowhichofthefollowing:

Output where MPL


iszero

Output where MPL


iszero

12.

A production function defines the maximum


output that can be produced with a given set of
inputs in the short run. A production function
analysisfacilitatesallofthefollowingexcept:

Varying output
with
varying
equipment
and
managerial
capability

Varying output
with
varying
equipment
and
managerial
capability

13.

Minimising costs necessitates a firm to take


efficient supply decisions. Production efficiency
ismaximizedwhen:

APLismaximum

Total Product (TP)


ismaximum

14.

An upward shiftinproductionfunction can take


placebecauseofallofthefollowingexcept:

Higher
returns/wages to
labour&capital

Higher
returns/wages to
labour&capital

15.

Under boom conditions, a firm will decide to


supply even when production efficiency is
declining.Thisisbecause:

Rise in output
price>riseininput
costs

Rise in output
price>riseininput
costs

16.

"Wage legislationinIndia requiresmostfirmsto


pay workers no less than the legislated
minimum wage per hour." For productive and
efficient workers, such a legislation would
imply:

MPL=Wage

MPL > Wages


(price)

17.

Consider a firm using subsidized diesel (X1)


and gas (X2). If the subsidies on gas is
withdrawn then which of the following wouldbe
true:

18.

Technical efficientand profit maximizing output


will coincide under which of the following
situation

APL maximum
under recessionary
condition

APL maximum
under recessionary
condition

19.

Given a production function, if theefficiency of


the capital falls, this will result in which of the
following:

Lower output fora


givenlevelofinput

Lower output fora


givenlevelofinput

20.

WhenMPL=APL,whichofthefollowingistrue:

APismaximum

MPismaximum

Q.N
o.

Question

ActualAnswer

SelectedAnswer

Marks
obtaine
d

1.

The demand for new cars is generally


consideredtobepriceelastic.Thisisbecause:

large number of
substitutes
available

cars are luxury


goods

2.

Which of the following indicates maximization


ofthetotalrevenue:

Price elasticity
equal to one and
MR=0

Price elasticity is
greater than one
andMR=0

3.

A forecast ofincome risewillentail an increase


inproductionforwhichofthefollowing:

If the product is a
Normalgood

If the product is a
Normalgood

4.

Generally demand for salt is price inelastic.


Thisisbecause

Accounts for a
small share in
consumer
expenditure

No substitute
productsavailable

5.

Which of the following is used to identify a


firm'srivalproductsinthemarket

Cross
elasticity
demand

Cross
elasticity
demand

price
of

6.

For a firm, the revenue implications of a


demand curve is captured by the Marginal
revenue (MR) curve. A firm will decrease the
price as long as the MR is positive. This
happenswhen

The
price
elasticity is greater
thanone

The
price
elasticity is less
thanone

7.

In the demandsupply framework, a product's


pricingreflects:

Scarcityvalue

Alloftheabove

8.

For a given downward sloping demand curve,


as price decreases total revenues increase
initiallyandthendecline.Thisisbecause

the priceelasticity
of demand along
the demand curve
decreases as we
move from top to
bottom

the priceelasticity
of demand along
the demand curve
decreases as we
move from top to
bottom

9.

Assume that the price elasticity of a good is


1.9. If a firmwereto decreasethe pricewhichof
thefollowingwouldbetrue

Total revenue will


increase

Total revenue will


increase

10.

Demand curve shiftscantakeplacebecauseof


allofthefollowingexcept:

Decrease in price
ofproduct

A successful
advertisement
campaign

TotalCorrect
Answers

13

price
of

11.

Inrecession,demandforluxurygoodsfall.This
isbecause

The
income
elasticity is less
thanone

The
income
elasticity is greater
thanone

12.

In recession, firms generally decrease the


price.Thisisbecause:

Decrease in price
is necessary to
maintain quantity
demanded

Alloftheabove

13.

In a highly competitive market, firms reduce


price.Thisisbecause:

The
price
elasticity is greater
thanone

The
price
elasticity is less
thanone

14.

Assume that the cross price elasticitybetween


two goods X and Yisclose tozero. Anincrease
inthepriceofXwillleadto:

No change in
demandforY

No change in
demandforY

15.

In the demand analysis, consumer tastes are


assumed to be constantin theshort run.Thisis
because:

Consumer
demand response
to price changes
cannotbeisolated

Consumer tastes
cannot
be
measured

16.

Marginal Utility (MU) is defined as the


incremental
utility
derived
from
the
consumption of one extra unit of a good. In the
demand decisions of a consumer, which of the
followingreflectsapositiveMU:

Alloftheabove

Increase
in
consumption of a
good

17.

Consumption of
good B toincrease
and keep price
constant

Consumption of
good A toincrease
and keep price
constant

18.

When prices fall, demand for a product


generallyrises.Thisisbecause:

Both(a)&(b)

Either(a)or(b)

19.

For a business firm, ananalysis ofthe demand


curveiscrucialbecause:

Alloftheabove

Alloftheabove

20.

The market demand curve is less elastic than


thatofanindividualfirm.Thisisbecause

Less substitutes
are available at the
market
level
compared to that
ofatfirmlevel

Less substitutes
are available at the
market
level
compared to that
ofatfirmlevel

TotalCorrect
Answers

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