Principles Of Microeconomics Quiz

1. If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will:

Increasethe amount demanded by more than 10 percent.

Decrease the amount demanded by more than 10 percent.

Decrease the amount demanded by less than 10 percent.

Increase the amount demanded by less than 10 percent.

If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will increase the amount demanded by more than 10 percent. This means that the decrease in price will result in a proportionally larger increase in the quantity demanded. This indicates that consumers are highly responsive to changes in price, and a decrease in price will lead to a significant increase in demand.

Explanation

If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will increase the amount demanded by more than 10 percent. This means that the decrease in price will result in a proportionally larger increase in the quantity demanded. This indicates that consumers are highly responsive to changes in price, and a decrease in price will lead to a significant increase in demand.

2. The MR = MC rule:

Applies only to pure competition.

Applies only to pure monopoly.

Does not apply to pure monopoly because price exceeds marginal revenue.

Applies both to pure monopoly and pure competition

The MR = MC rule applies both to pure monopoly and pure competition because it is a fundamental principle in economics that helps determine the optimal level of production for a firm. In pure competition, where there are many firms and no market power, the rule states that a firm should produce where marginal revenue equals marginal cost in order to maximize profits. In pure monopoly, where there is a single firm with market power, the rule still applies, but the firm should produce where marginal revenue equals marginal cost to maximize profits, even though price exceeds marginal revenue.

Explanation

The MR = MC rule applies both to pure monopoly and pure competition because it is a fundamental principle in economics that helps determine the optimal level of production for a firm. In pure competition, where there are many firms and no market power, the rule states that a firm should produce where marginal revenue equals marginal cost in order to maximize profits. In pure monopoly, where there is a single firm with market power, the rule still applies, but the firm should produce where marginal revenue equals marginal cost to maximize profits, even though price exceeds marginal revenue.

3. Monopolistic competition means:

Many firms producing differentiated products.

A situation where competition is based entirely on product differentiation.

A large number of firms producing a standardized or homogeneous product.

A few firms producing a standardized or homogeneous product

Monopolistic competition refers to a market structure where there are many firms producing differentiated products. In this type of competition, each firm has some control over the price of its product due to its unique features or branding. This allows firms to have a certain degree of market power and differentiate themselves from competitors. Unlike perfect competition, monopolistic competition allows for product differentiation, which leads to a wider range of choices for consumers and allows firms to compete based on factors other than just price.

Explanation

Monopolistic competition refers to a market structure where there are many firms producing differentiated products. In this type of competition, each firm has some control over the price of its product due to its unique features or branding. This allows firms to have a certain degree of market power and differentiate themselves from competitors. Unlike perfect competition, monopolistic competition allows for product differentiation, which leads to a wider range of choices for consumers and allows firms to compete based on factors other than just price.

4.

Refer to the above data. The value for Y is:

45

25

30

40

Based on the given data, the value for Y is 45.

Explanation

Based on the given data, the value for Y is 45.

5.

The above diagram indicates that the marginal revenue of the sixth unit of output is:

-$1

$1

$4

$24

The above diagram suggests that the marginal revenue of the sixth unit of output is negative, specifically -$1. This means that the revenue generated from producing and selling the sixth unit is less than the revenue generated from the previous unit. It indicates that the additional unit of output is causing a decrease in total revenue.

Explanation

The above diagram suggests that the marginal revenue of the sixth unit of output is negative, specifically -$1. This means that the revenue generated from producing and selling the sixth unit is less than the revenue generated from the previous unit. It indicates that the additional unit of output is causing a decrease in total revenue.

6. Suppose a pure monopolist is charging a price of $12 and the associated marginal revenue is $9. We thus know that:

Demand is inelastic at this price

The firm is maximizing profits

Total revenue is at a maximum

Total revenue is increasing

The correct answer is "total revenue is increasing". This is because the marginal revenue is positive ($9), which indicates that the additional revenue gained from selling one more unit is greater than the cost of producing that unit. Therefore, as the monopolist continues to sell more units, the total revenue will increase.

Explanation

The correct answer is "total revenue is increasing". This is because the marginal revenue is positive ($9), which indicates that the additional revenue gained from selling one more unit is greater than the cost of producing that unit. Therefore, as the monopolist continues to sell more units, the total revenue will increase.