Tag: liquidity preference and profit

Questions Related to 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.

business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

  1. normal profit

  2. average profit

  3. maximum loss

  4. maximum profit

Show answer
Correct Option: D

A monopolist is able to maximize his profits when _________________.

business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

  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

Show answer
Correct Option: D
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.

Marginal Revenue is equal to:

business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

  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.

Show answer
Correct Option: C
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.

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?

business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

  1. Rs. 20

  2. Rs. 19

  3. Rs. 10

  4. Rs. 1

Show answer
Correct Option: C
Explanation:

$\displaystyle MR =\frac {Change\, in\,TR}{Change \,in\, output}$
$\displaystyle =\frac{(10 \times 19) - (20 \times 9)}{10 - 9} = Rs.\, 10$

With a given supply curve, a decrease in demand causes -

business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

  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.

Show answer
Correct Option: C
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

If the marginal (additional) opportunity cost is a constant then the PPC would be __________.

business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

  1. Convex

  2. Straight line

  3. Backward bending

  4. Concave

Show answer
Correct Option: B

The basic behavioural principle which apply to all market conditions ________.

business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination

  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

Show answer
Correct Option: D
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.

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

business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

  1. Negative

  2. Positive

  3. Zero

  4. Indeterminate from the given information

Show answer
Correct Option: B

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

business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

  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

Show answer
Correct Option: D

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

business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

  1. MC = MR

  2. MC curve must cut MR curve from below

  3. AR < MC

  4. both (A) and (B)

Show answer
Correct Option: D
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).