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

When demand curve shifts to the right, the ________. 

  1. equilibrium quantity and price increase

  2. equilibrium quantity and price decrease

  3. equilibrium quantity increases and price decreases

  4. equilibrium quantity decreases and price increases
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

A rightward shift in the demand curve indicates an increase in demand. With a stable supply curve, this leads to both a higher equilibrium price and a higher equilibrium quantity.

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

When demand curve shifts to the right, What happens to the new equilibrium?

  1. Higher than original

  2. Lower than original

  3. Same as original

  4. None of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

When the demand curve shifts to the right, the new equilibrium point is reached at a higher price and quantity compared to the original equilibrium.

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

When the price of petrol goes up, demand for cars will _____ . 

  1. rise

  2. fall

  3. not changes

  4. remain unchanged
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Petrol and cars are complementary goods. When the price of a complement (petrol) rises, the demand for the associated good (cars) falls.

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

Indirect demand is also known as ______ demand.

  1. derived

  2. direct

  3. composite

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

Indirect demand, or derived demand, occurs when the demand for a good or service is a consequence of the demand for something else (e.g., demand for labor is derived from the demand for the product the labor produces).

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

In the case of unitary elastic demand, the total outlay of the consumer before the price change and after the price change will ______ . 

  1. become more

  2. become less

  3. remain the same

  4. fluctuate
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

In the case of unitary elastic demand, the total outlay of the consumer before the price change and after the price change will remain the same. This is a hypothetical case as there is no real life examples for the same. 

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

The life saving medicines have inelastic demand. 

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

True. Life saving medicines have inelastic demand. By inelastic we mean when the price changes that consumer buying habit remains the same. The consumer will not reduce the consumption of a life saving drug is the price increase and vice versa. 

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

If the demand is less than unitary elastic , the total outlay of the consumers will change in the opposite direction of change in price.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

False. If the demand is less than unitary elastic, the total outlay of the consumers will change in the same direction of change in price. In this case when the total expenditure rises with a rise in price and decreases with a fall in price elasticity will be less than 1.  

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

As per Marginal Revenue and Marginal Cost (MR and MC) approach of looking at the producer's equilibrium, which of the following condition is necessary for producer's equilibrium?

  1. MR = MC

  2. MC cuts the MR curve from below

  3. Both (A) and (B)

  4. Either (A) or (B)
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The necessary conditions for producer equilibrium in the MR-MC approach are that MR equals MC and that the MC curve must cut the MR curve from below (ensuring profit is maximized rather than minimized).

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

Producer's equilibrium refers to the level of output of a commodity that gives the ________ to the producer of that commodity.

  1. normal profit

  2. average profit

  3. maximum loss

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

Producer's equilibrium is defined as the state where a firm maximizes its profit, given its cost structure and market demand. At this point, the firm has no incentive to change its level of output.

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

A monopolist is able to maximize his profits when _________________.

  1. His output is maximum

  2. He charges a high price

  3. His average cost is minimum

  4. His marginal cost is equal to marginal revenue
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

A monopolist is able to maximize his profits when his marginal cost is equal to marginal revenue. The profit-maximizing choice for the monopoly will be to produce at the quantity where marginal revenue is equal to marginal cost: that is, MR = MC.

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

Marginal Revenue is equal to:

  1. The change in price divided by the change in output.

  2. The change in quantity divided by the change in price.

  3. The change in P x Q due to a one unit change in output.

  4. Price, but only if the firm is a price searcher.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Marginal revenue refers to the change in revenue or additional revenue which a firm earns on selling a unit more of its output. IT is the change in Revenue= Price x Quantity.

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

Assume that when price is Rs. 20, quantity demanded is 9 units, and when price is Rs. 19, quantity demanded is 10 units. Based on this information, what is the marginal revenue resulting from an increase in output from 9 units to 10 units?

  1. Rs. 20

  2. Rs. 19

  3. Rs. 10

  4. Rs. 1
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

$\displaystyle MR =\frac {Change\, in\,TR}{Change \,in\, output}$
$\displaystyle =\frac{(10 \times 19) - (20 \times 9)}{10 - 9} = Rs.\, 10$

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

With a given supply curve, a decrease in demand causes -

  1. An overall decrease in price but an increase in equilibrium quantity.

  2. An overall increase in price but a decrease in equilibrium quantity.

  3. An overall decrease in price and a decrease in equilibrium quantity.

  4. No change in overall price but a reduction in equilibrium quantity.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

An increase in demand causes the equilibrium price to rise. On the other hand, a decrease in demand causes the equilibrium price to fall. An increase in supply causes the equilibrium price to fall, while a decrease in supply causes the equilibrium price to rise

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

If the marginal (additional) opportunity cost is a constant then the PPC would be __________.

  1. Convex

  2. Straight line

  3. Backward bending

  4. Concave
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The Production Possibility Curve (PPC) represents the trade-off between two goods. If the marginal opportunity cost is constant, the amount of one good sacrificed for each additional unit of the other remains the same, resulting in a straight-line graph.

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

The basic behavioural principle which apply to all market conditions ________.

  1. a firm should produce only if its TR > TVC

  2. a firm should produce at a level where its MC = MR

  3. MC curve cuts the MR curve from below.

  4. all of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

In every market a firm should produce either if they are earning profits or if they are able to cover up total variable cost, i.e. if total revenue is greater than total variable cost.

The firm achieves equilibrium where the marginal revenue is equal to marginal cost and the marginal cost curve cuts the marginal revenue curve from below.