Microeconomics Questions and Answers

Answer: C

The chronological order is IV, II, I, III, option C. The law of variable proportions, of the classical economists, is the oldest. The Cobb-Douglas production function was put forward in 1928, the CES production function in 1961, and the translog production function in the early 1970s. Option A puts the translog function first and the Cobb-Douglas function last, and option B puts the law of variable proportions after the CES function. Option D has the translog function before the CES function and the law of variable proportions last, so none of them follows the dates.

Answer: A

The matching is: the behavioural theory of the firm with Cyert and March (2), the marginal productivity theory of distribution with J. B. Clark (1), the double criterion of welfare with Scitovsky (4), and the impossibility theorem with Kenneth Arrow (3), giving 2 1 4 3, option A. Options B, C and D pair the behavioural theory or the impossibility theorem with the wrong person, for example by giving Arrow the behavioural theory in option B.

Answer: B

The keyed answer is that a Walrasian solution exists only if Pareto's condition of optimality is satisfied. In the textbook treatment of general equilibrium, the equilibrium of perfectly competitive markets is the allocation at which the Paretian marginal conditions hold together: equal marginal rates of substitution across consumers, equal marginal rates of technical substitution across firms, and equality of the rate of product transformation with the common marginal rate of substitution. Option A names the mathematical device used in modern existence proofs, but it is a proof technique and not an economic condition on the allocation. Option C, Hicks's stability conditions, concern whether a price adjustment process converges, not whether a solution exists. Option D, Pareto's law of income distribution, is a statistical regularity about income and has no role in equilibrium.

Answer: B

The adding-up theorem says that total product is exhausted when every factor is paid according to its marginal productivity. This follows from Euler's theorem for a production function that is homogeneous of degree one (constant returns to scale): output equals the sum of each input multiplied by its marginal product, so nothing is left over and nothing is overpaid. Option A is wrong because paying by average productivity would not exhaust output in general; the average and marginal products differ except at a single point. Option C is wrong because paying all factors the same rate has no connection with the product being exactly used up. Option D is wrong because factor rewards tied to commodity prices are not the marginal productivity rule at all.

Answer: D

The producer keeps substituting capital for labour until the marginal rate of technical substitution equals the ratio of the marginal productivities of labour and capital. Along an isoquant the MRTS is the slope, equal to MP of labour divided by MP of capital, and the cost-minimising point is where this slope matches the factor price ratio. Option A is wrong because the output price is not compared with the wage rate in this condition. Option B is wrong because the MRTS is a ratio of two factor prices, not a single interest rate. Option C is wrong because marginal revenue belongs to the output side and enters the profit maximising condition, not the choice of input mix along one isoquant.

Answer: A

The keyed matching is: sales maximization with Baumol (2), growth maximization with Marris (1, printed as Morris), and managerial utility function maximization with Williamson (3), and the fourth line is matched with none of the names offered, which is why option A ends in None. Baumol's model maximises sales revenue subject to a minimum profit constraint, Marris's model maximises the balanced growth rate of the firm, and Williamson's model maximises managerial utility from staff, emoluments and discretionary investment. Option B swaps Baumol and Marris. Option C gives Kaldor the managerial utility theory and Williamson the combined objective. Option D reverses the whole list.

Answer: C

The correct matching is cardinal utility with Alfred Marshall (2), revealed preference with Samuelson (4), indifference curve theory with Hicks (1) and utility under uncertainty with Neumann and Morgenstern (3), which gives the code 2 4 1 3. Marshall built demand on measurable marginal utility. Samuelson introduced revealed preference to avoid unobservable utility. Hicks, with Allen, rebuilt demand on indifference curves. Neumann and Morgenstern constructed the expected utility index for choice under risk. Option A is the order of the lists as printed and matches none of these. Option B reverses the order. Option D pairs Hicks with revealed preference and Samuelson with cardinal utility, which is wrong on both.

Answer: A

The key treats both statements as correct, with the reason explaining the assertion. In Chamberlin's non-collusive oligopoly solution each seller recognises that rivals will match any price cut, so undercutting gains nothing. Every firm therefore charges the monopoly price and takes an equal share of the market, and this outcome is stable because the firms recognise their mutual interdependence. Option B is wrong because the reason is the supporting argument for the assertion rather than an error. Option C is wrong because the recognition of interdependence is exactly what produces the shared monopoly price. Option D is wrong because the assertion states the standard Chamberlin result.

Answer: D

The statement that is correctly described is both (A) and (C): the revealed preference approach assumes that a person's tastes are stable over time, and it relies on repeated observations of the market behaviour of a single person. Samuelson's method infers the preference ordering, and hence the indifference curve, from the choices actually observed when prices and income change. Those observations are only comparable if tastes stay the same across them and they come from one consumer. Option B is wrong because the approach does not assume that all people have identical tastes; it works person by person. So the combination in option D is the only complete answer.

Answer: D

None of the options states a condition of consumer's equilibrium for two commodities, so the answer is none of the above. The equilibrium condition is that the marginal utility per rupee is the same for both goods, which is the ratio of marginal utilities equal to the ratio of prices, \(U_1/U_2 = P_1/P_2\), together with exhaustion of the budget. Option A says marginal utility is zero, which is a satiation point. Option B says the ratio of marginal utilities is zero, which is impossible for positive prices. Option C is only a second order condition of diminishing marginal utility, and it is not itself the equilibrium condition.