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Microeconomics Questions and Answers

171.

Although a monopolist can charge any price he likes, but does not charge a higher price than his equilibrium price because

Exam Year(s)

UGC NET - 2012,

Answer: A

The keyed answer is that a higher price means a fall in total revenue. A monopolist will not push the price above the profit-maximising level, because in the region above it demand is elastic and a further rise in price lowers total revenue, while costs do not fall by enough to make up for it.

Option B mixes up the reason: the monopolist operates only on the elastic part of demand, where marginal revenue is positive, not on an inelastic part. Option C restates the point loosely, and option D is wrong since marginal cost is not negative.

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172.

Which of the following conditions specify the least cost-output combination ?

Exam Year(s)

UGC NET - 2012,

Answer: D

All three conditions describe the same least-cost (cost-minimising) combination of inputs. The firm minimises cost for a given output where the price ratio of the inputs equals the marginal rate of technical substitution, and the MRTS is equal to the ratio of the marginal products. The slope condition can be written in several equivalent ways, such as the ratio of the marginal products of capital and labour equal to dL/dK in magnitude.

Since A, B and C are the same equilibrium condition written in different ways, the answer is 'All the above'.

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173.

Which of the following is not relevant in case of Sweezy's oligopoly model ?

Exam Year(s)

UGC NET - 2012,

Answer: D

Sweezy's kinked demand model says that a firm expects rivals to follow a price cut but not a price rise. That makes the demand curve kinked: elastic above the going price and inelastic below it, so prices stay rigid. Option A and option B are therefore part of the model.

Option C (no reaction to any change) and option D (reaction to all kinds of changes) both contradict the model, since the model needs an unequal reaction. The key chooses option D, as the statement furthest from the asymmetric reaction, though option C is also not relevant to the model.

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174.

Quasi rent is the reward to a factor of production which is

Exam Year(s)

UGC NET - 2012,

Answer: A

Quasi rent is the reward to a factor of production which is fixed in supply in the short run, so that it earns a surplus over its transfer earnings in the short run. In the long run the factor can be varied and the surplus disappears, so the earnings become transfer earnings. The answer is that it is economic rent in the short run and transfer earnings in the long run.

Options B and C say that it is only transfer earnings, and option D that it is rent in both periods, which is the property of pure economic rent on land.

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175.

While analyzing the marginal productivity theory of distribution, Clark gave more emphasis on.

Exam Year(s)

UGC NET - 2012,

Answer: A

In the marginal productivity theory of distribution, J.B. Clark gave more emphasis to the demand for labour: the wage is equal to the value of the marginal product of labour, which is the demand side of the market, and each factor is paid its marginal product.

The supply of labour is treated in this theory as given. Therefore option B and option C do not describe his emphasis, and profit maximisation is the reason of the firm behind the demand, but not what the theory stresses.

Clark's argument is that in a competitive market the firm hires labour until the wage equals the value of the marginal product, and since this gives the demand curve for labour the weight falls on demand.

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176.

According to Weber's Theory of Location, the important factors influencing location are

1. Transport Cost
2. Land Cost
3. Labour Cost
4. Innovation Cost
Choose the correct code :

Exam Year(s)

UGC NET - 2012,

Answer: C

In Weber's theory of location of industries, the main factors are transport cost and labour cost, with agglomeration as the third. The plant is placed at the point of least transport cost, and it moves to a place of cheap labour if the saving is more than the extra transport cost. So 1 and 3 is option C.

Land cost and innovation cost are not the main factors in Weber's model, so options A, B and D, which contain them, are wrong.

Weber's model is explained with the material index and the locational triangle, with the minimum transport cost point as the base, which labour cost and agglomeration then shift.

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177.

Marginal Revenue of a Monopoly firm is less than the price. Because :

Exam Year(s)

UGC NET - 2012,

Answer: B

The marginal revenue of a monopoly firm is less than the price because its demand curve has a negative slope. A monopolist faces the whole market demand, so to sell one more unit it must lower the price, and the lower price applies to all units sold, not just the extra one. The revenue gained from the new unit is therefore the new price less the loss on the units that could have been sold at the higher price, so MR is below price at every output. A positively sloped demand curve, losses and equilibrium have nothing to do with why MR lies below price, so options A, C and D are wrong.

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178.

For an inferior goods, income consumption curve and Engles curves are

Exam Year(s)

UGC NET - 2012,

Answer: B

For an inferior good, both the income consumption curve and the Engel curve are negatively sloped. As income rises the consumer buys less of an inferior good, so the quantity falls as income rises. The Engel curve shows this directly, with quantity falling as income rises, and the income consumption curve, which traces the optimum bundles as income grows, bends back in the direction of the inferior good, which shows the same fall. A positive slope would describe a normal good, so options A and D are wrong. The two curves are related but are different curves, so option C is wrong.

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179.

A point of 'Kink' in the kinked demand curve indicates

I. Price rigidity
II. Quantity rigidity
III. Price flexibility
IV. Quantity flexibility

Exam Year(s)

UGC NET - 2012,

Answer: A

The kink in the kinked demand curve indicates price rigidity and quantity rigidity, statements I and II, option A. A rival is assumed to match a price cut but not a price rise, so the demand curve is elastic above the kink and inelastic below it. The marginal revenue curve has a gap at the output of the kink, so changes in marginal cost within the gap do not alter the price or the output, which stay fixed. Statements III and IV, price flexibility and quantity flexibility, say the opposite, so options B, C and D, which include them, are wrong.

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180.

Assertion (A) : Giffin's paradox rarely occurs in the real world.

Reason (R) : Inferior goods are narrowly defined for which suitable substitutes are available.

Exam Year(s)

UGC NET - 2012,

Answer: C

The key takes the assertion as correct and the reason as incorrect. The Giffen paradox, in which the quantity demanded rises when the price rises, is a rare case, since it needs a very inferior good that takes a large share of the consumer's budget, so it is seldom seen in the real world. The reason says that inferior goods are narrowly defined and have suitable substitutes. That does not explain the rarity, because the Giffen good is a special type of inferior good for which the income effect outweighs the substitution effect. So option C is the keyed answer and options A, B and D are wrong.

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