Question

1. The market for automobiles is an example of:
   1. Monopolistic competition.
   2. Duopoly.
   3. Differentiated oligopoly.
   4. Pure oligopoly.

2. If an oligopolist is attempting to maximize revenue, it should produce a quantity of output where marginal revenue is:
   1. Greater than marginal cost.
   2. Equal to zero.
   3. Equal to marginal cost.
   4. None of the above is correct.
3. If consumer income declines, then the demand for:
   1. Normal goods will increase.
   2. Inferior goods will increase.
   3. Substitute goods will increase.
   4. Complementary goods will increase.

1. Which of the following market comes close to satisfying the assumptions of a perfectly competitive market structure?

1. The stock market.
2. The market for agricultural commodities such as wheat or corn.
3. The market for petroleum and natural gas.
4. All of the above come close to satisfying the assumptions of perfect competition.

2. The market demand curve for a perfectly competitive industry is QD=12-2P. The market supply curve is QS=3+P. The market will be in equilibrium if:
   1. P=6 and Q=9.
   2. P=5 and Q=2.
   3. P=4 and Q=4.
   4. P=3 and Q=6.

1. Which of the following is NOT an assumption associated with the definition of a production function?
   1. Technology remains constant.
   2. Both inputs and outputs are measured in monetary units.
   3. The function shows the maximum level of output possible with a given combination of inputs.
   4. All units of the inputs are homogeneous.

1. If a firm reduces the price of its product from $6 to $4 and the quantity demanded of the product increases from 45000 to 55000 units per week, then the price elasticity is equal to:
   1. -10
   2. -1
   3. 0
   4. -0.5

The cross-price elasticity of demand between two differentiated goods produced by firms in the same industry will be

1. Negative and large.
2. Negative and small.
3. Positive and large.
4. Positive and small.

Answer 1

1. Ans: Differentiated oligopoly.

Explanation:

A market is said to be oligopoly whren there are few sellers of large size sells either identical or differentiated products. The market for automobiles is an example of differentiated oligopoly because diffrent automobile company produced automobiles of different features.

Thus, option [c] is correct answer.

2. Ans: Equal to marginal cost.

Explanation:

The profit maximization condition is MR = MC.

Thus, option [c] is correct answer.

3. Ans: Inferior goods will increase.

Explanation:

The income elasticity of demand is positive for a normal good and negative for an inferior good. Negative income elasticity means as income increases, demand for the good decreases and vice-versa. Thus, if consumer income declines, then the demand for inferior goods will increase.

Thus, option [b] is correct answer.

4. Ans: All of the above come close to satisfying the assumptions of perfect competition.

5. Ans: P=3 and Q=6.

Explanation:

At equilibrium,

QD = QS

12 - 2P = 3 + P

3P = 9

P = 9 / 3 = $3

Q = 3 + P = 3 + 3 = 6

Thus, option [d] is correct answer.

6. Ans: Both inputs and outputs are measured in monetary units.

7. Ans: -0.5

Explanation:

P1 = 6   Q1 = 45,000

P2 = 4    Q2 = 55,000

PED = (Q2 - Q1) / (P2 - P1) * (P1 + P2) / (Q1 + Q2)

         = (55,000 - 45,000) / (4 - 6) * (6 + 4) / (45,000 + 55,000)

         = (10,000 / -2) * (10 / 100,000)

         = 100,000 / -200,000

        = -0.5

8. Ans: Positive and large.

Explanation:

Two differentiated goods are substitutes. So, cross-price elasticity of demand between two differentiated goods is positive.