Tag: theories of distribution

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Questions Related to theories of distribution

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

When AR is falling, MR will be ___________.

  1. equal to AR

  2. less than AR

  3. more than AR

  4. either more or equal to AR
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

When the average revenue (price) is falling, the marginal revenue must be lower than the average revenue because the firm must reduce the price on all previous units to sell the additional unit.

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

If AR curve is falling straight line, MR curve will lie below it in such a way that any line drawn from a point from y-axis parallel to x-axis to meet the AR curve is intersected by the MR curve _________.

  1. mid-way

  2. more than half-way

  3. less than half-way

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

For a linear demand curve, the MR curve is twice as steep as the AR curve. Geometrically, this means that for any horizontal line drawn from the Y-axis, the MR curve will intersect it exactly halfway between the Y-axis and the AR curve.

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.