Tag: liquidity preference and profit

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Questions Related to liquidity preference and profit

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

The concept of marginal cost is closely related with which of the following?

  1. Variable cost

  2. Fixed cost

  3. Opportunity cost

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

Marginal cost is defined as the change in total cost resulting from a one-unit change in output. Since fixed costs do not change with output, marginal cost is entirely determined by the change in variable costs.

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

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.