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 the demand of a pure monopoly firm is elastic, MR will be _______.

  1. negative

  2. positive

  3. zero

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

This is a duplicate of question 473116. When demand is elastic (|Ed|>1), a price decrease increases total revenue, meaning MR is positive. MR becomes negative when demand is inelastic, and equals zero at unit elastic point.

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 is possible
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

For a monopolist, the demand curve (AR) is downward sloping. To sell an additional unit, the firm must lower the price for all units, meaning the marginal revenue from the last unit is less than the price (AR) received for it.

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

A monopoly firms demand curve is __________.

  1. same as its supply curve

  2. same as its average revenue curve

  3. same as its marginal revenue curve

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

The average revenue (AR) represents the price per unit at different quantities, which is exactly the definition of the demand curve. Therefore, for any firm, the demand curve is the same as the AR curve.

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

In the long-run equilibrium of a competitive market, firms operate at:

  1. The intersection of the marginal cost and marginal revenue

  2. Their efficient scale

  3. Zero economic profit

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

In the long run, a competitive firm operates at MC = MR, on the minimum of the LAC and earn zero economic profit, i.e, operate at normal profit levels.

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

Price discrimination will be profitable only if the elasticity of demand in different markets in which the total market has been divided is ____________.

  1. uniform

  2. different

  3. less

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

Price discrimination will be profitable only if the elasticity of demand in different markets in which the total market has been divided is different, since, that would give the firm an opportunity to charge differing prices and generate higher revenues.

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

In a non-competitive market, when the demand of the product increases and the product price increases _______________.

  1. the marginal revenue curve will shift to the right

  2. the marginal revenue curve will shift to the left

  3. the firm will move up the marginal revenue curve and hire fewer units of the input

  4. the firm will move down the marginal revenuencurve and hire fewer units of the input
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The marginal revenues curve follows from the demand curve/average revenue curve (it is twice as steep as the demand curve), thus if the demand curve shifts upwards the marginal revenue curve will also shift upwards. 

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

The supply curve for the monopolist __________.

  1. does not exist

  2. is represented by the marginal cost curve above the average total cost curve

  3. is represented by the marginal cost curve above the average variable cost curve

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

A supply curve shows the quantity a firm is willing to produce at various prices. Because a monopolist chooses a price based on its demand curve rather than taking the price as given, there is no unique relationship between price and quantity supplied, so no supply curve exists.

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

Marginal revenue for a monopolist is equal to ________________________.

  1. the increased revenue from the sale of an additional unit less the loss the revenue from selling previous unit at a lower price

  2. the change in revenue resulting from a one unit change in output

  3. the change in revenue divided by the change in output

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

Marginal revenue is the change in total revenue divided by the change in output. It also accounts for the gain from the new unit sold minus the loss in revenue from selling previous units at a lower price.

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

In imperfect competition, the average revenue and marginal revenue curves are ________.

  1. different

  2. same

  3. identical

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

In perfect competition, the firm is a price taker, so AR equals MR. In imperfect competition, the firm faces a downward-sloping demand curve, meaning it must lower prices to sell more, causing MR to be lower than AR.

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

Which of the following is true regarding monopolistic competition?

  1. $AR=MR$
  2. $MR=0$
  3. $AR< MR$
  4. $AR>MR$
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

In monopolistic competition, the firm faces a downward-sloping demand curve. As a result, the price (AR) is always greater than the marginal revenue (MR) at any quantity produced.

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

Under monopoly, MR can be negative only when:

  1. AR is increasing

  2. AR is decreasing

  3. AR is constant

  4. AR is zero
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Marginal revenue becomes negative when the total revenue starts to decline. This occurs when the demand is inelastic, which happens as the price (AR) decreases along the lower portion of the demand curve.

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

The strength of a monopolist may be assessed by ____________.

  1. the size of his total revenue

  2. the gap between AR and MR

  3. the size of consumer's surplus accruing to him

  4. the long-term price of his product
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The gap between AR and MR is a reflection of the price elasticity of demand. A larger gap indicates less elastic demand, which gives the monopolist more market power to set prices above marginal cost.

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

In the case of consumer's demand curve determines the price, but in the case of producer ___________.
(i) AR curve determines the price
(ii) AR curve determines the price and income
(iii) MR curve determines  the price
(iv) MR curve and AR curve are determines the price

  1. 1 only

  2. 2 only

  3. 3 only

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

In a monopoly, the firm is a price maker. The price is determined by the demand curve (AR) at the quantity where the firm chooses to produce (where MR equals MC). Thus, the AR curve is the primary determinant of the price.

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

The marginal revenue of the monopolist is ____________.

  1. Larger than price

  2. Equal to price

  3. Smaller than price

  4. Any of the above is possible
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

In a monopoly, the marginal revenue is lower than the price because the demand curve is downward sloping. When prices go down, more units of the product are bought. Because of this, marginal revenue will not always equal price.

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

Competitive behaviour means _________.

  1. when an individual firm is unable to influence the price at which the product is sold in the market

  2. when firms compete with each other to achieve a greater share of the market

  3. both A and B

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

Competition or competitive behaviour means when firms compete with each other in a variety of ways to achieve a higher level of sales or a greater share of the market.

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