Economics · Commerce Accountancy

Microeconomics and Pricing

1,413 Questions

Microeconomics and pricing analyze market structures, consumer utility, marginal cost, and strategic pricing models like predatory pricing. These foundational economic concepts are regularly featured in civil services and state administrative examinations. Solve these practice questions to understand market equilibrium, demand elasticity, and competitive firm behavior.

Market equilibrium pricingIncome elasticity of demandMarginal cost conceptsUtility functions analysisPredatory pricing strategiesOligopoly market structures

Microeconomics and Pricing Questions

Multiple choice

Match the following.

 
Group - I Group - II
1. Behavioural model of rational choice (i) Cyert and March
2. Price behaviour of firms (ii) Williamson
3. Behavioural theory of the firm (iii) H. A. Simon
4. Managerial utility maximisation (iv) A. Silberston

  1. 1 - (i), 2 - (ii), 3 - (iii), 4 - (iv)

  2. 1 - (iv), 2 - (iii), 3 - (ii), 4 - (i)

  3. 1 - (ii), 2 - (iii), 3 - (iv), 4 - (i)

  4. 1 - (iii), 2 - (iv), 3 - (i), 4 - (ii)

  5. 1 - (i), 2 - (iii), 3 - (iv), 4 - (ii)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

H. A. Simon focused on behavioural model of rational choice. The idea of price behaviour of firms was given by A. Silberston. R. M. Cyert and J. C. March gave their idea jointly on a behavioural theory of the firm. Williamson developed the theory of managerial utility maximisation.

Multiple choice

Match the following ||| |---|---| | Group - I| Group - II| |1. Profit maximisation and its implications|(i) M. Z. Kafolgis| |2. Rules of thumb and optimally imperfect decisions|(ii) W. J. Baumol| |3. Economic theory and operations analysis|(iii) T. Scitovsky| |4. Output of the restrained firm |(iv) R. E. Quant|

  1. 1 - (iv), 2 - (iii), 3 - (ii), 4 - (i)

  2. 1 - (i), 2 - (ii), 3 - (iii), 4 - (iv)

  3. 1 - (i), 2 - (iii), 3 - (iv), 4 - (ii)

  4. 1 - (iii), 2 - (iv), 3 - (ii), 4 - (i)

  5. 1 - (iv), 2 - (ii), 3 - (iii), 4 - (i)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

"Profit maximisation and its implications" was introduced by T. Scitovsky. "Rules of thumb and optimally imperfect decisions" was propounded by R. E. Quant. "Economic theory and operations analysis" was introduced by W. J. Baumol. "Output of the restrained firm" was propounded by M. Z. Kafolgis.

Multiple choice

When the elasticity of demand on every point of the demand curve is equal to one, then the value of its related marginal revenue curve is

  1. equal to one

  2. less than one

  3. more than one

  4. equal to zero

  5. None of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

If the elasticity of demand on every point of the demand curve (e) is equal to one, then M R = A R [e - 1/e] .......(i) Putting the value of e into equation (i) MR = A R [1 - 1/1] = A R [1 - 1] = A R X 0 = 0

Multiple choice

Re-ordering level = Maximum consumption x

  1. Minimum consumption

  2. Maximum re-order period

  3. Minimum re-order period

  4. Both (1) and (2)

  5. None of these
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The re-ordering level formula is defined as Maximum Consumption multiplied by Maximum Re-order Period. This ensures that the organization has enough stock to cover the longest possible lead time.

Multiple choice

Directions: Read the following information carefully and answer the question given below.

A car industry newsletter recently claimed that if the price of car engines were reduced by 25 percent, the retail price for cars, which utilise these engines, would undergo the same decrease in price.

Which of the following would a skeptic most likely point out about the car newsletter’s claim?

  1. Advances in engineering now allow car designers to achieve the same level of power while using smaller car engines.

  2. Advertising costs, marketing expenses and handling fees, none of which are linked to the price of car engines, make up a substantial portion of the retail price of cars.

  3. The car industry is an especially competitive field in which firms vying for business keep car prices low.

  4. Research indicates that the number of cars purchased, increases substantially after the retail price is reduced more than 30 percent.

  5. None of these
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

To weaken an argument, attack the assumption. The author is assuming that there is no other factor that would prevent an equivalent reduction in the retail price of cars. This choice shows other factors that need to be considered.

Multiple choice

Directions: Read the passage/argument and answer the question that follows it.

Very few inputs influence the US economic system as much as oil prices. Oil runs the cars, trucks and planes that transport people and products. As oil prices rise, costs rise for transportation companies such as airlines and freight delivery companies, squeezing their profit margins. Downstream of these companies, customers who rely on them to get products to markets are similarly impacted by higher prices. Contrarily, most energy companies benefit from higher oil prices, either from higher oil revenues, or due to more demand for alternatives like ethanol and clean energy. Car companies with fuel conservation technology such as hybrid engines can expect more sales as consumers feel the pinch of higher oil prices, while those who rely on sales of Sports Utility Vehicles may feel challenged business-wise.

The author conveys his point primarily by

  1. creating an analogy between two directionally dissimilar but logically equivalent phenomena

  2. making use of an example to illustrate something else happening in an entirely different field

  3. analysing a phenomenon in terms of the a chains of cause and effect

  4. using points and counter-pints in favour of and against a particular idea

  5. using a set of phenomena to illustrate how the two, despite being opposed to each other, are still the same
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

An analogy, by definition, compares two sets of phenomena, each containing a set of minimum two items. This is not the case here, thereby ruling out option (1). The area of discussion remains only and only the impact of rising oil prices on different sets of industries and people. No idea has been favoured or criticised by the author. Thus option (4) is again wrong. Option (5) could be similarly ruled out as the two kinds of effects being discussed are not the same. Option (3) happens to be the best choice in that the author mainly talking about the sequential effects of an oil price rise on different industries and people.

Multiple choice

The revenue curve in case of perfect competition is

  1. parallel to OX-axis

  2. parallel to OY-axis

  3. downward sloping

  4. upward sloping
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The AR and MR curve is perfectly elastic and parallel to OX-axis in case of perfect competition. It is downward sloping in case of monopolistic competition.

Multiple choice

The shape of revenue curve in monopoly is

  1. less elastic

  2. more elastic

  3. inelastic

  4. perfectly elastic
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The shape is less elastic. In monopolistic competition, it is more elastic and perfectly elastic in perfect competition.

Multiple choice

There are a few sellers in case of

  1. monopoly

  2. perfect competition

  3. monopolistic competition

  4. oligopoly
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

In Oligopoly, there exists a very few sellers (usually two to seven) e.g. Pepsi/Coke, Indian oil/Hindustan Petroleum.            There is only one seller in case of monopoly. There are usually many sellers in perfect competition and monopolistic competition.

Multiple choice

Which of the following is not a feature of pure competition?

  1. Large number of buyers and sellers

  2. Homogeneous products

  3. Free entry and exit of firms

  4. No transportation costs
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

All the other three are the only features of pure competition. There is no transportation cost in perfect competition.

Multiple choice

Which of the following is not true about monopoly?

  1. AR and MR are downward sloping

  2. AR can't be zero but MR can

  3. MR curve lies below AR line

  4. None of these
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

All the above statements are correct for monopoly. In perfect competition, AR and MR are same line and horizontal.