Economics · Commerce Accountancy

Microeconomics and Pricing

1,364 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

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

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

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 a perfect example of monopoly under law in India?

  1. Sole cable operator in your area

  2. Basmati rice

  3. Indian railway

  4. Road transportation buses
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Indian railway is the perfect example of monopoly created by government. In monopoly created by government, only one firm exists and there is barrier to entry to the new firm. Sole cable operator in any area, basmati rice, buses on roads do not enjoy this privilege.

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.

Multiple choice

In oligopoly, the shape of demand curve is

  1. parallel to OX axis

  2. parallel to OY axis

  3. downward sloping

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

The shape of demand curve is kinked in case of oligopoly. The demand curve is parallel to OX axis in perfect competition and downward sloping in monopoly and monopolistic competition.

Multiple choice

The upper portion of kinked demand curve represents

  1. low elastic demand

  2. high elastic demand

  3. inelastic demand

  4. none of these
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The upper portion of kinked demand curve represents high elastic demand while lower portion represents low elastic demand.