A Microeconomics Intelligence MCQ Test!

(MR = Marginal revenue)

Price discrimination refers to the practice of selling the same product to different consumers at different prices, even though the production costs for each consumer are identical. This strategy is often used by businesses to maximize their profits by charging higher prices to consumers who are willing to pay more, while offering lower prices to price-sensitive consumers. Price discrimination can be based on various factors such as location, age, income level, or purchasing history. This practice allows businesses to capture a larger portion of consumer surplus and increase their overall revenue.

A monopoly is a market structure in which there is only one seller, producer, firm, or supplier. This means that there is no competition in the market, and the monopolistic entity has complete control over the supply and pricing of the goods or services it offers. The absence of other sellers or producers allows the monopolist to have significant market power and potentially exploit consumers through higher prices or lower quality products.

A legal unit of production with 1 or more stores and 1 or more employees can be referred to as a firm, business, or company. These terms are often used interchangeably to describe an organization that engages in commercial activities and employs people to produce and sell goods or services. Regardless of the specific term used, the key characteristic is that it is a legally recognized entity involved in economic activities.

When there is only enough economies of scale to support one firm in an industry, the resulting monopoly is referred to as "natural." This means that due to various factors such as high initial investment costs, limited resources, or technological advantages, it is more efficient and practical for only one firm to operate in the industry. As a result, this firm can enjoy a dominant position in the market and potentially have control over prices and competition.

A demerit good is a good that has negative externalities. Negative externalities refer to the costs or harmful effects that are imposed on third parties who are not involved in the consumption or production of the good. In the case of demerit goods, the consumption of these goods results in negative consequences for society as a whole. These negative externalities can include health issues, environmental damage, or social problems. Therefore, the correct answer is negative externalities.

A formal collusive agreement refers to an organized group of firms that come together to manipulate prices, restrict competition, and control the market. This agreement is commonly known as a cartel. Cartels are formed with the intention of maximizing profits by coordinating production levels, setting prices, and sharing market information among its members. By doing so, cartels can effectively reduce competition and maintain their dominance in the market, often leading to higher prices for consumers.

Average revenue is the total revenue earned by a firm divided by the quantity of goods or services sold. It represents the revenue generated per unit of sales. This metric is useful for businesses to assess their pricing strategies and overall sales performance. By calculating average revenue, companies can determine the average amount of money they are earning from each unit sold, which can help them make informed decisions about pricing, production levels, and profitability.

Diseconomies of scale occur when the cost per unit of output increases as the scale of production increases. This means that as a company expands its operations and produces more goods or services, it experiences higher costs per unit. This can be due to various factors such as inefficiencies in coordination, increased complexity in management, or difficulty in maintaining quality control. In contrast, economies of scale refer to the situation where the cost per unit decreases as output increases.

The shut-down price is the level of price that enables a firm to cover its variable costs in the short-run. Variable costs are expenses that change in proportion to the level of production or sales, such as raw materials and direct labor. By setting the price at or above the shut-down price, the firm ensures that it can at least cover its variable costs and avoid operating at a loss. This allows the firm to continue its operations in the short-run.

The term "non-rivalrous" refers to a characteristic of a public good where its consumption by one individual does not diminish or reduce the availability or benefit of the good for others. In other words, multiple individuals can consume the good simultaneously without it being depleted. This is an important aspect of public goods as it allows for widespread access and enjoyment without competition or scarcity. The repetition of "non-rivalrous" and "non rivalrous" in the answer indicates that both spellings are acceptable and refer to the same concept.

Planning refers to the process of setting goals, determining the necessary resources, and establishing a course of action to achieve those goals. In the context of the given statement, it suggests that all production activities occur within the short-run timeframe. This means that decisions related to production, such as determining the quantity of goods to produce and the allocation of resources, are made based on short-term considerations. In contrast, the long-run refers to a timeframe where all inputs can be varied, and decisions regarding production can be made with a more comprehensive and long-term perspective.

The correct answer is "Total cost of a firm's fixed assets in a given time period." This means that total fixed cost refers to the sum of expenses incurred by a company for its fixed assets, such as buildings, equipment, and machinery, over a specific period of time. It does not include variable costs, which can change based on the level of production or other factors.

The term "total product" refers to the total output that a firm produces. It represents the quantity of goods or services produced by a company within a given time period. This can include physical products or intangible services. The total product is a crucial measure for assessing a firm's production efficiency and productivity. It helps in determining the optimal level of production and understanding the relationship between inputs and outputs in the production process.

The firm is considered to be productively efficient because it is producing its goods at the lowest possible average cost. This means that the firm is utilizing its resources efficiently and minimizing wastage in the production process. By producing goods at the lowest cost, the firm is able to maximize its output and minimize its costs, which is a key characteristic of productive efficiency.

A good that is excludable means that access to it can be restricted to certain individuals or groups. A good that is rivalrous means that its consumption by one person reduces the amount available for others. When a good possesses both of these characteristics, it is considered a private good. This means that individuals can be prevented from using it, and its consumption by one person diminishes its availability for others.

The correct answer is "Period of time in which at least one factor of production is fixed." In the short-run, there is at least one factor of production that cannot be easily changed or adjusted, while other factors can be varied. This means that some inputs, such as capital or technology, remain fixed, while others, such as labor or raw materials, can be adjusted. This distinction between fixed and variable factors is important in understanding the dynamics of production and the ability to make short-term adjustments to output.

There are not many oligopolies where the four largest firms hold less than 50% of the total market share

The correct answer is "variable factor" or "variable factor of production". The term "marginal product" refers to the additional output that is generated by employing an additional unit of a variable factor in the production process. A variable factor is a factor of production that can be adjusted or changed in the short run, such as labor or raw materials. Therefore, the correct answer is the variable factor or variable factor of production, as they both accurately describe the concept of marginal product and its relationship to the adjustable factor in production.

Managerial economies refer to the practice of using labor in a more efficient manner. This involves optimizing the allocation of resources, streamlining processes, and implementing effective management strategies to increase productivity and reduce costs. By making better use of available labor, organizations can achieve higher levels of efficiency and profitability.

Allocative efficiency refers to the situation where resources are allocated in a way that maximizes the satisfaction or utility of consumers. In other words, it means that suppliers are producing the combination of goods and services that best meets the preferences and needs of consumers. This ensures that resources are not wasted on producing goods that are not in demand or underproducing goods that are highly desired by consumers.

A monopsony refers to a market structure where there is only one buyer or a few buyers. In this type of market, the buyer has significant control over the price and quantity of a product or service. This is in contrast to a monopoly, which refers to a market with only one seller. In a monopsony, the buyer has the power to dictate terms to the sellers, potentially leading to lower prices and reduced competition.

A merit good is a good with positive externalities that is often provided by the government. It is a good that has benefits beyond the individual consumer, such as education or healthcare. The government often intervenes in the provision of merit goods because they believe that individuals may not consume enough of them on their own due to market failures. By providing these goods, the government aims to promote the well-being of society as a whole.

Abnormal profit refers to a situation where a firm's total revenue not only covers but exceeds total costs, including opportunity costs. This means that the firm is earning more than what is considered normal or expected in the industry. It indicates that the firm is operating efficiently and is able to generate higher profits than its competitors.

Both options (a) and (b) can be considered as definitions of "economies of scale". Option (a) states that when the scale of output increases, the cost per unit output decreases, which is a common characteristic of economies of scale. Option (b) states that any decreases in long-run average costs that occur when a firm adjusts all its factors of production to increase its scale of output can be considered as economies of scale. This definition also aligns with the concept of economies of scale, as it describes the cost advantages gained from increasing production scale.

A non-collusive oligopoly refers to a market structure where a few firms dominate the industry and have the ability to influence prices and make decisions on advertising, production, etc. However, unlike in a collusive oligopoly or cartel, these firms do not formally agree to coordinate their actions. Instead, they observe and react to the behavior of other firms in the industry. This can lead to a situation where firms tacitly collude, meaning they act in a way that mimics collusion without any explicit agreement. Therefore, the correct answer is non-collusive oligopoly.

The correct formula to define accounting profit is Total revenue - Accounting cost. This formula subtracts the total cost of producing goods or services from the total revenue generated from selling those goods or services. By subtracting the accounting cost, which includes all expenses incurred in the production process, from the total revenue, the formula calculates the profit made by a business after considering all costs.

In monopolistic competition, firms are usually neither productively nor allocatively efficient

Accounting costs refer to costs that can be measured and expressed in monetary terms. These costs are tangible and can be recorded in the firm's financial statements. They include expenses such as wages, rent, utilities, and raw materials. Opportunity costs, on the other hand, are the potential benefits or profits that are foregone when a decision is made to pursue a certain course of action instead of an alternative. These costs are not reflected in the accounting records as they are not actual monetary outflows. Therefore, the correct answer is "Costs which have a money value."

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Total profit = (Total revenue - Total cost) where the latter not only includes fixed and variable costs but also opportunity costs

Price differentiation refers to the practice of charging different prices for the same product based on varying production costs. This strategy allows companies to maximize their profits by targeting different market segments with different price points. By adjusting prices according to factors such as location, demand, or customer preferences, businesses can optimize their revenue and cater to a wider range of consumers. Price differentiation is a common practice in industries such as airlines, hotels, and retail, where companies aim to extract the maximum value from each customer segment.

The theory of contestable markets is being described in this statement. This theory suggests that the threat of competition can lead firms to adjust their prices and output in order to maintain their market position. In a contestable market, even if there are only a few firms, the threat of new entrants or the possibility of existing firms exiting the market can create competitive pressure. This theory highlights the importance of potential competition in shaping firm behavior and market outcomes.