Microeconomics Questions and Answers

21.

The best strategy in Prisoner's Dilemma is to cheat when:

A.You play the game several times with different opponent
B.You play the game several times with the same opponent
C.Never, cheating is wrong
D.You play the game once

Exam Year(s)

DSSSB PGT - 2023,

Answer: D

In a one shot prisoner's dilemma the dominant strategy for each player is to cheat (confess), because it gives the better pay off whatever the other does. When the game is repeated with the same opponent, cheating invites retaliation and cooperation can be sustained. So cheating is the best strategy when the game is played once. The answer is you play the game once, option D. In a repeated game with the same person, a player who cheats can be punished, which makes cooperation worthwhile.

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22.

How can a firm estimate market demand curve for its product?

A.By combining price elasticity of individual demands
B.By adding consumer surplus to total expenditure
C.By multiplying price by quantity demanded
D.By combining individual demand curves horizontally

Exam Year(s)

DSSSB PGT - 2023,

Answer: D

The market demand curve is the horizontal sum of the individual demand curves: at each price the quantities that the individual consumers wish to buy are added up. Adding the elasticities, adding consumer surplus to expenditure or multiplying price by quantity does not give a demand curve. The answer is by combining individual demand curves horizontally, option D. Adding along the horizontal axis means adding the quantities that each consumer buys at the same price.

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23.

Economies of scale emanate from:

A.Learning by doing
B.Production of two different products jointly
C.Production of two complementary products separately
D.Production bulk

Exam Year(s)

DSSSB PGT - 2023,

Answer: D

Economies of scale arise from producing in bulk, since fixed costs are spread over more units and larger plants allow greater specialisation and purchase discounts, so the average cost falls as output increases. Learning by doing is an effect of cumulative experience, and joint production of different products is an economy of scope. The key gives production in bulk, option D. Bulk production lowers the cost per unit as the fixed cost is spread over more units.

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24.

Which of the following short-run cost curves is a rectangular hyperbola?

A.Average variable cost curve
B.Marginal cost curve
C.Average cost curve
D.Average fixed cost curve

Exam Year(s)

DSSSB PGT - 2023,

Answer: D

The average fixed cost curve is a rectangular hyperbola, since total fixed cost is constant, and AFC = TFC/Q, so AFC times Q is always the same number. The average variable cost, marginal cost and average cost curves are U shaped. The answer is the average fixed cost curve, option D.

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25.

In short run, a monopoly firm can make:

A.Losses
B.Normal profits
C.Super normal profits
D.Losses or Normal profits or Super normal profits

Exam Year(s)

DSSSB PGT - 2023,

Answer: D

A monopoly firm is not protected from losses by its market power. In the short run it may make super normal profit, normal profit or a loss, depending on where its demand curve lies relative to its average cost curve. So all three outcomes are possible, and the correct option is the one that lists all of them. The answer is option D. Whether it earns profit depends on the position of the demand curve relative to the average cost curve.

In the long run a monopoly that makes losses leaves the market, so only normal or super normal profit can last, while the short run allows all three.

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26.

Price discrimination on personal basis can be done through all of the following EXCEPT:

A.Geographical
B.Demographical
C.Paying capacity
D.Need

Exam Year(s)

DSSSB PGT - 2023,

Answer: A

Price discrimination on a personal basis means charging different prices to different persons according to their ability to pay or need, as with concessions to students. Geographical (place based) discrimination is a different type, based on the location of the buyer, and so it is the exception. The key gives geographical, option A. Geographical discrimination is based on place, and not on the personal qualities of the buyer.

Pigou classified discrimination as by persons, by place and by use, and geographical discrimination is the one by place.

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27.

Pareto Product Mix Efficiency equation is:

A.\(MRS^{A}_{XY} = MRS^{B}_{XY}\)
B.\(MRS^{A}_{XY} = MRPT_{XY}\)
C.\(MRTS^{X}_{KL} = MRTS^{Y}_{KL}\)
D.\(MRS^{A}_{XY} = MRTS^{X}_{KL}\)

Exam Year(s)

DSSSB PGT - 2023,

Answer: B

Pareto efficiency in the product mix requires that the marginal rate of substitution of consumers in consumption equals the marginal rate of product transformation in production, so that what consumers are willing to give up of one good for another equals what the economy has to give up in production. The condition MRS = MRPT is therefore the product mix efficiency condition, option B. Equal MRS across consumers is exchange efficiency, and equal MRTS across firms is factor efficiency.

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28.

All of the following are in the purview of microeconomics except:

A.What to produce?
B.How to produce?
C.Is the economy growing?
D.For whom to produce?

Exam Year(s)

DSSSB PGT - 2023,

Answer: C

Microeconomics deals with the basic questions of what to produce, how to produce and for whom to produce, with the choices of individual units. Whether the economy is growing is a question about the whole economy, so it falls in macroeconomics. The answer is 'Is the economy growing?', option C.

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29.

All of the following facts hold good for consumers' equilibrium except:

A.Utility is maximized at the tangency of budget line to an indifference curve
B.The indifference curve is the highest possible curve attainable by the consumer
C.At the optimum bundle slope of the indifference curve is equal to the slope of the budget line
D.The point of equilibrium may lie within the feasible area

Exam Year(s)

DSSSB PGT - 2023,

Answer: D

At consumer's equilibrium the indifference curve touching the budget line is the highest attainable, and utility is maximised at the point of tangency, where the slope of the indifference curve equals that of the budget line. The equilibrium point lies on the budget line, not inside the feasible area, since a point inside the budget line would leave income unspent and a higher indifference curve reachable. So the statement that it may lie within the feasible area is the exception. The answer is option D.

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30.

Which of the following will shift demand curve of alcohol to the left?

A.Health research linking alcohol with heart disease
B.A decrease in indirect tax on alcohol
C.An increase in real income
D.A successful advertising campaign encouraging alcohol consumption

Exam Year(s)

DSSSB PGT - 2023,

Answer: A

A demand curve shifts to the left when demand falls at every price. Research linking alcohol with heart disease changes tastes against it and reduces demand. A decrease in indirect tax lowers the price and moves along the curve or raises supply, a rise in real income raises the demand for a normal good, and a successful advertising campaign increases demand. The answer is option A. The other three changes would either raise demand or move the market along the curve, and so they cannot shift it to the left.

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