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 economics theories of distribution liquidity preference and profit revenue and revenue curves simple monopoly and commodity market

When Marginal revenue is zero?

  1. Total revenue is also zero

  2. Total revenue is the maximum

  3. Total revenue is the minimum

  4. Total revenue starts increasing sharply
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Total revenue (TR) is maximized when marginal revenue (MR) equals zero. Beyond this point, selling additional units would cause TR to decline because the price reduction required to sell more outweighs the revenue from the extra unit.

Multiple choice economics theories of distribution liquidity preference and profit revenue and revenue curves simple monopoly and commodity market

Average revenue of a monopolist firm is _________.

  1. always more than the marginal revenue

  2. always less than the marginal revenue

  3. equal to marginal revenue

  4. any of the above three possible
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

For a monopolist, the demand curve is downward sloping, meaning to sell more units, the firm must lower the price for all units. Consequently, the marginal revenue of the next unit is lower than the average revenue (price) of the units sold.

Multiple choice economics theories of distribution liquidity preference and profit revenue and revenue curves simple monopoly and commodity market

Individual buyer and seller is a price taker in which market structure?

  1. Monopoly

  2. Perfect competition

  3. Discriminating monopoly

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

In a perfectly competitive market, there are many buyers and sellers, and the product is homogeneous. Therefore, no single participant can influence the market price, making them price takers.

Multiple choice economics theories of distribution liquidity preference and profit revenue and revenue curves simple monopoly and commodity market

In imperfect competition, the MR curve will lie ______________.

  1. Below the AR curve

  2. Above the MR curve

  3. Below the AC curve

  4. Above the AC curve
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

A firm under imperfect competition such as under monopoly can sell more only by lowering its price. Therefore, the average curve is downward sloping and its corresponding marginal revenue curve lies below it.

Hence, A is the correct option.

Multiple choice economics theories of distribution liquidity preference and profit revenue and revenue curves simple monopoly and commodity market

Under monopoly ________________.

  1. The AR being steeper than the MR curve

  2. The MR being steeper than the AR curve

  3. MR = AR

  4. AC = AR
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

In a monopoly, the marginal revenue (MR) curve lies below the average revenue (AR) curve and is twice as steep. This is because the firm must lower the price on all previous units to sell an additional unit.

Multiple choice economics theories of distribution liquidity preference and profit revenue and revenue curves simple monopoly and commodity market

The average revenue curve of a firm under pure monopoly will be a _______________.

  1. Straight line

  2. Vertical line

  3. Downwards slope

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

A monopolist faces the entire market demand curve, which is downward sloping. Since the average revenue curve is identical to the demand curve, it must also be downward sloping.

Multiple choice economics theories of distribution liquidity preference and profit revenue and revenue curves simple monopoly and commodity market

Government can eliminate all monopoly profits by setting a price equal to ______________.

  1. Average variable cost

  2. Average cost

  3. Average fixed cost

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

 The government requires the monopoly to set a price equal to average cost. That is, it requires the firm to choose an (output, price) pair for which AC is equal to AR. This regulation eliminates profit, but does not necessarily lead to an efficient outcome.

Multiple choice economics theories of distribution liquidity preference and profit revenue and revenue curves simple monopoly and commodity market

In monopolistic competition, the average revenue curve of the firm is ______________.

  1. less elastic

  2. more elastic

  3. unit elastic

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

Average curve will be considerably more elastic  because the monopolistically competitive firm has less control over the price that it can charge for its output.

Multiple choice economics theories of distribution liquidity preference and profit revenue and revenue curves simple monopoly and commodity market

The demand curve under monopolistic competition is _______________.

  1. Horizontal

  2. Infinitely elastic

  3. Negatively sloped and highly elastic

  4. Negatively sloped and highly inelastic
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The demand curve for an individual firm is downward sloping in monopolistic competition, in contrast to perfect competition where the firm's individual demand curve is perfectly elastic. This is due to the fact that firms have market power: they can raise prices without losing all of their customers.

Multiple choice economics theories of distribution liquidity preference and profit revenue and revenue curves simple monopoly and commodity market

The upper position of the kinked demand curve is relatively __________.

  1. less elastic

  2. more elastic

  3. more inelastic

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

In the kinked demand curve model of oligopoly, the segment above the current price is more elastic because competitors do not follow price increases, leading to a larger drop in quantity demanded.

Multiple choice economics theories of distribution liquidity preference and profit revenue and revenue curves simple monopoly and commodity market

For a monopoly firm, __________.

  1. the price depends on the quantity of the commodity sold

  2. price is a decreasing function of the quantity sold

  3. The market demand curve shows the quantities that consumers as a whole are willing to purchase at different prices.

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

A monopoly faces a downward-sloping demand curve, meaning price is a function of quantity. Both statements A and B correctly describe this relationship.

Multiple choice economics theories of distribution liquidity preference and profit revenue and revenue curves simple monopoly and commodity market

 _____ is the most visible exception to the inverse relationship of competitive market structure and competitive 

  1. Perfect competition

  2. Pure monopoly

  3. Oligopoly

  4. None of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
Competitive behaviour and competitive market structure are, in general,  inversely related; the more competitive the market structure, less competitive  is the behaviour of the firms. On the other hand, the less competitive the market structure, the more competitive is the behaviour of firms towards each other. Pure monopoly is the most visible exception. In a pure monopoly, there is only one seller, there is no competition in the market structure.
Multiple choice economics theories of distribution liquidity preference and profit revenue and revenue curves simple monopoly and commodity market

A __________ has been defined as one where an individual firm is unable to influence the price at which the product is sold in the market.

  1. perfectly competitive market

  2. oligopoly

  3. monopoly

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

A perfectly competitive market is defined by the existence of many buyers and sellers, none of whom can influence the market price. Each firm is a price taker.