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 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.

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 a monopolist sets her output such that marginal revenue, marginal cost and average tool cost are equal, economic profit must be:

  1. Negative

  2. Positive

  3. Zero

  4. Indeterminate from the given information
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

If marginal revenue (MR) equals marginal cost (MC), the firm is at its profit-maximizing output level. If this level also equals average total cost (ATC), then price must be greater than ATC (since MR is less than price for a monopolist), meaning the firm earns positive economic profit.

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 efficient level of output can be achieved under perfect competition as _______________.

  1. government regulates the output level that must be produced

  2. firms earn only normal profit in the long run

  3. firms can earn an economic profit in the long run

  4. price equals marginal cost
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

In perfect competition, efficiency is achieved when the price consumers are willing to pay equals the marginal cost of producing the last unit. This ensures that resources are allocated according to consumer preferences.

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

According to "marginal revenue marginal cost approach" approach, a monopoly firm attains equilibrium when _______.

  1. MC = MR

  2. MC curve must cut MR curve from below

  3. AR < MC

  4. both (A) and (B)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

For profit to be maximized the difference between MR and MC should be zero. If MR > MC it is profitable to increase production and when MR < MC it is profitable to decrease production. And the MC curve should intersect the MR curve from below for maximising profit in absolute terms. (Higher output will lead to larger total revenue).

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 table below that will be equilibrium market price?

Price (Rs.) Demand (tonnes per annum) Supply (tonnes per annum)
12345678 1,000900800700600500400300 4005006007008009001,0001,100

  1. Rs. 2

  2. Rs. 3

  3. Rs. 4

  4. Rs. 5
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Equilibrium market price is a point where the demand equals the supply for a particular commodity. Hence, in the given illustration, demand (700) is equal to supply (700) at Rs.4. Hence, it is equilibrium market price.

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 supply of bottled water decreases, the equilibrium price ___________ and the equilibrium quantity ___________.

  1. Increases; decreases

  2. Decreases; increases

  3. Decreases; decreases

  4. Increases; increases
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

If demand decreases and supply increases then equilibrium quantity could go up, down, or stay the same, and equilibrium price will go down. If demand decreases and supply decreases then equilibrium quantity goes down, and the equilibrium price could go up, down, or stay 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

Which of the following would not, of itself, cause a shift of the demand curve for a product?

  1. A change in consumers preference

  2. A change in consumer income

  3. A change in the price of the product

  4. A change in the price of related products
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

A change in the price of the product leads to movement along the demand curve and not a shift in the demand curve.

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

Equilibrium level of output for the pure monopolist is where _________.

  1. $MR=MC$
  2. $MR>MC$
  3. $MR< MC$
  4. $P< AC$
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

A monopolist maximizes profit by producing at the output level where the additional revenue from selling one more unit (MR) is exactly equal to the additional cost of producing that unit (MC).