Question

1.    Here are two statements, each of which may be true or false.

I Production requires at least two factors of production (inputs).

II       In the short run, all factors of production are fixed.

Choose the correct option from the list below.

A      Neither statement is true.

B       Only I is true.

C       Only II is true.

D      Both statements are true.

2.         A sunk cost is a cost that once incurred can

A      always be recovered

B       never be recovered

C       sometimes be recovered

3.    Consider the short run. Which statement below is TRUE?

A      Average fixed cost falls as output increases.

B       Average fixed cost rises as output increases.

4.        The short-run supply curve of a competitive firm is the

A          average variable cost curve above the short-run marginal cost curve

B          marginal cost curve above the short-run average variable cost curve

5.        The short-run supply curve of a competitive industry is the

A          horizontal sum of the short-run supply curves of all competitive firms

B          vertical sum of the short-run supply curves of all competitive firms

6.    An increasing cost industry has a supply curve that is

A      downward-sloping

B       flat

C       upward-sloping

Questions 7-8. A firm operating under conditions of competition is a price taker in the market for its product (and also in the market for its inputs), whereas a monopolist is a price searcher in the market for its product (and likely but not necessarily in the market for its inputs).

7.    Here are two statements, either of which may be true or false.

I A price taker never makes more than normal profit in the short run.

II       A price taker never makes more than normal profit in the long run.

Choose the correct option from the list below.

A      Neither statement is true.

B       Only I is true.

C       Only II is true.

D      Both statements are true.

8.    Here are two statements, either of which may be true or false.

I A price searcher always makes more than normal profit in the short run.

II       A price searcher always makes more than normal profit in the long run.

Choose the correct option from the list below.

A      Neither statement is true.

B       Only I is true.

C       Only II is true.

D      Both statements are true.

9.    Here are four statements, each of which may be true or false.

I           The output of a monopoly is always less than that which would prevail if the industry were organized competitively.

II          If economies of scale were possible, the output of a monopoly might sometimes be greater than that which would prevail if the industry were organized competitively.

III        If perfect price discrimination were possible, the output of a monopoly might sometimes be greater than that which would prevail if the industry were organized competitively.

IV        The output of a monopoly is always greater than that which would prevail if the industry were organized competitively.

Choose the correct option from the list below.

A      Only I is true.

B       Only II is true.

C       Only III is true.

D      II and III are true, but I and IV are false.

E       Only IV is true.

10. The difference between tying and bundling is that

A      bundled goods are sold one to one and tied goods are sold one to many.

B       tied goods are sold one to one and bundled goods are sold one to many.

Answer 1

1) a option is correct

production requires all four factor of production land, labor , capital and entrepreneurship.

in short run one factor of production is fixed which is capital

2) b option is correct

a sunk cost is a cost that already been spent and cannot be recovered.

3) a option is correct

average fixed cost falls as output increases

AFC= TFC/Q

as you can see denominator is increasing so over all value will decline.

4) b option is correct

short run supply curve of competitive firm is marginal cost curve over the short run average variable cost curve profit maximizing firm produces where MR=MC

5) a option is correct

as quantity is on x axis supply curve of industry is the sum of supply curve of firms or we can say that we combine the output of all the firms so it is summation horizontally moving forward on x axis

6) c option is correct

in increasing cost industry supply curve is upward sloping industry produce more of output but at higher prices to compensate the increase in cost

7) c option is correct

theory of perfect competition says that firm can earn abnormal profit in short run only in long run it earns normal profit

8) d option is correct

price searcher always make super normal profit in long run as well as in short run because monopoly price is high in short run and in long run

9) a option is correct

as statement 1 is true the output of monopoly is always less than perfect competitive firm because for more profit monopoly has to charge higher prices which tends to fall the quantity but in perfect competition firm can sell any quantity at prevailing price if monopoly want to sell more quantity it has to lower the prices which leads to losses

as you can see statement 1 is true so only a option is true all others contradicts

10) b option is correct

tied goods are sold one to one but bundled goods are sold one to many in tying seller requires to sell some or all purchasers of it to purchase separate product

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