Tag: liquidity preference and profit

Questions Related to liquidity preference and profit

A produce strikes his equilibrium when the difference between $TR$ and $TC$ is maximised.
business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

  1. True

  2. False

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Correct Option: A
Explanation:

A producer strikes his equilibrium when he produces that amount of output at which the difference between total revenue and total cost is maximum. This is because, $\text{Net profit} = TR - TC$.

The producer strikes his equilibrium only when $MP$ is diminishing.
business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

  1. True

  2. False

Show answer
Correct Option: A
Explanation:

A producer strikes his equilibrium only when $MP$ is diminishing, where the $MC$ is simultaneously rising. The producer stops production when rising $MC$ matches with falling $MR$. Beyond this point, rising $MC$ would exceed $MR$, causing loss of profit.

In finding equilibrium position of a profit maximising firm, which technique is most convenient ___________.

business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

  1. total revenue and total cost technique

  2. marginal revenue and marginal cost technique

  3. demand and supply technique

  4. none of the above

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Correct Option: B

A circumstance in which it might pay a monopolist to cut the price of his product is where _________.

business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

  1. MC is falling

  2. MR is greater than MC

  3. his advertising costs are increasing

  4. average costs seem about to fall

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Correct Option: B

Equilibrium beyond the full employment level does not lead to rise in output level. 

economics theories of distribution unemployment and employment generation the short run fixed price analysis of the product market liquidity preference and profit

  1. True

  2. False

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Correct Option: A
Explanation:

The level of output will not rise as economy is already at full employment level and there is no idle capacity in the economy.

According to Keynes, the equilibrium level of income is always determined corresponding to full employment level. 

economics theories of distribution unemployment and employment generation the short run fixed price analysis of the product market liquidity preference and profit

  1. True

  2. False

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Correct Option: B
Explanation:

False.
 The equilibrium level on income may be determined at a level less than full employment where the market is clear even in under utilization of resources , more than the full employment where market is clear even if resources are over utilized or equal to level of full employment. 

 In determination of Equilibrium Level of Income by AD-AS approach, AD curve is represented by ____________.

economics theories of distribution unemployment and employment generation the short run fixed price analysis of the product market liquidity preference and profit

  1. (C + S) curve

  2. (C + I) curve

  3. (S + I) curve

  4. (C +Y) curve

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Correct Option: A
Explanation:

Aggregate Demand refers to the desired level of expenditure in the economy during an accounting year. It is what people wish to spend on the purchase of goods and services during an accounting year.

The Ad curve in income determination analysis represents a two sector economy which only includes the expenditure made by the consumer sector and the producer sector.

Therefore, aggregate demand = consumption + investment = C + I.

The two approaches to determination of the equilibrium level of income are:

economics theories of distribution unemployment and employment generation the short run fixed price analysis of the product market liquidity preference and profit

  1. Aggregate demand-Aggregate supply approach

  2. Saving-Investment approach

  3. Demand-Supply approach

  4. Both A & B

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Correct Option: D
Explanation:

Two approaches are:

1) Aggregate demand-Aggregate supply approach-
An economy is in equilibrium when aggregate demand for goods and services is equal to aggregate supply during a period of time.

So, equilibrium is achieved when:

AD = AS … (1)

We know, AD is the sum total of Consumption (C) and Investment (I):

AD = C + I … (2)

Also, AS is the sum total of consumption (C) and saving (S):

AS = C + S … (3)

Substituting (2) and (3) in (1), we get:

C + S = C + I.....(4)

2)Saving-Investment approach 

According to this approach, the equilibrium level of income is determined at a level, when planned saving (S) is equal to planned investment (I).

from equation( 4)

 S = I

When aggregate supply exceeds aggregate demand or when investment is less than savings, _____________ will decrease.

economics theories of distribution unemployment and employment generation the short run fixed price analysis of the product market liquidity preference and profit

  1. savings

  2. price

  3. income

  4. all of the above

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Correct Option: C
Explanation:

When aggregate supply is more than aggregate demand or when investment is less than savings, then the planned inventory rises above the desired level. To clear the unwanted increase in inventory, firms plan to reduce the production output till Aggregate demand becomes equal to Aggregate supply. Therefore, level of national income reduces to the level of aggregate demand in the economy.

When aggregate demand exceeds aggregate supply or when investment is greater than savings, _____________ will increase.

economics theories of distribution unemployment and employment generation the short run fixed price analysis of the product market liquidity preference and profit

  1. price

  2. income

  3. savings

  4. all of the above

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Correct Option: B
Explanation:

When aggregate demand is more than aggregate supply or when investment is more than saving in the economy , then the planned inventory would fall below the desired level. To bring back the Inventory at the desired level, the producers will expand the output. Therefore, as a result of more output in the economy, the income will increase.