Microeconomics | MCQs

Explanation

Explanation

The sacrifice involved when you choose a particular course of action is called "Opportunity Cost."

Explanation

• If the elasticity of demand for a product is -0.5, this means that demand is inelastic.
• Inelastic demand indicates that a percentage change in price leads to a smaller percentage change in quantity demanded.
• Specifically, a demand elasticity coefficient between 0 and -1 signifies inelastic demand.

Explanation

At any level of output where the short-run average cost curve is tangent to the long-run average cost curve, the long-run marginal cost (LMC) is equal to the short-run marginal cost (SMC).

Explanation

• In production theory, the short run is a period during which at least one resource is fixed.
• This means that there are constraints on adjusting all inputs to production.
• For example, in the short run, a firm may not be able to change its capital equipment or the size of its factory.
• However, it can adjust variable inputs such as labor.

Explanation

If the household consumes along the budget constraint where MUx/Px > MUy/Py then assuming normal preferences, we are sure that the household could increase its total utility by consuming more of X and less of Y.

Explanation

• A purely competitive firm will produce where Price (P) equals Marginal Cost (MC) because this action maximizes profits.
• At this point, the firm achieves the highest level of profit by producing the quantity where the marginal cost of production equals the price it receives for its output.
• This maximizes the difference between total revenue and total cost, which is the definition of profit maximization in economics.

Explanation

• A profit-maximizing firm will hire more labor up to the point where the marginal revenue product (MRP) of labor equals the marginal factor cost (MFC) of labor, which is the wage rate. This is known as the point of equilibrium in the labor market.
• The MRP of labor is the additional revenue generated by the last unit of labor hired, and the MFC is the additional cost of hiring that unit of labor. When MRP = MFC, the firm has maximized its profits.

Explanation

If demand function for good X is given by X^D = 1500-1.3P,-1.8P + 2M then we know that goods X and Y are complements to each other.

Explanation

• To find the marginal cost (MC), you need to take the derivative of the cost function with respect to quantity (Q).
• Given cost function: C(Q) = 2Q^2 + 10Q + 50

Take the derivative of C(Q) with respect to Q:

• MC(Q) = dC/dd = 4Q + 10

Now, plug in the value Q = 5:

• MC(5) = 4(5) + 10 = 20 + 10 = $30.