Question 1: If X represents the factors of production and Y represent the factor price, which of the following sets of association is correct?
Options: A) (land, rent) (capital, wage), (labour, profit) B) (land, interest) (capital, profit), (labour, wage) C) (land, wage), (capital, interest), (labour, rent) D) (land, rent), (capital, interest), (labour, wage)
Answer: D) (land, rent), (capital, interest), (labour, wage)
Explanation: The correct associations are land with rent, capital with interest, and labor with wages. Option D correctly matches these associations.
Question 2: If the cost of production for a firm continues to increase as its output rises, the firm is said to be experiencing?
Options: A) large-scale production B) profit maximization C) economies of scale D) diseconomies of scale
Answer: D) diseconomies of scale
Explanation: When the cost of production for a firm continues to increase as its output rises, the firm is said to be experiencing diseconomies of scale. Option D correctly describes this concept.
Question 3: Given perfect competition in the capital market, the opportunity cost of capital is adequately reflected by the?
Options: A) interest rate B) returns on capital C) alternative capital foregone D) shadow price of foreign exchange
Answer: A) interest rate
Explanation: In perfect competition in the capital market, the opportunity cost of capital is adequately reflected by the interest rate. Option A correctly identifies the opportunity cost of capital.
Question 4: If 10k per kg, 1000kg of yam were purchased and at 5k per kg, 1,500kg were purchased, the resultant point elasticity of demand is?
Options: A) 0.33 B) 0.0001 C) 1 D) 10,000
Answer: A) 0.33
Explanation: The point elasticity of demand is calculated using the formula:
(point elasticity of demand) = (percentage change in quantity demanded) / (percentage change in price)
In this case, the initial price was 10k per kg and the initial quantity demanded was 1000kg. After the price change to 5k per kg, the new quantity demanded was 1,500kg.
Using the formula above, we get:
(point elasticity of demand) = ((1,500 – 1,000) / ((1,500 + 1,000) / 2)) / ((5,000 – 10,000) / ((5,000 + 10,000) / 2)) = -0.33
Taking the absolute value, we get a point elasticity of demand of 0.33. Option A correctly identifies this value.
Question 5: If, as the price of a commodity rises, the quantity demanded of the commodity remains the same, then the demand for the commodity is?
A) static B) infinitely elastic C) externally determined D) perfectly inelastic
Answer: D) perfectly inelastic.
Explanation: When the price of a commodity changes but the quantity demanded remains the same, it is an indication of perfectly inelastic demand. This means that the consumers are willing to buy the same amount of the commodity regardless of the change in price.
Question 6: Which of the following factors is an important determinant of the magnitude of price elasticity of demand?
A) The production period B) Cost of storage C) Durability of the product D) Availability of factors of production
Answer: C) Durability of the product.
Explanation: The durability of a product is an important determinant of the magnitude of price elasticity of demand. The more durable a product is, the lower its price elasticity of demand will be. This is because consumers will tend to hold on to durable products for a longer time, reducing the need to replace them frequently, even if the price of the product changes.
Question 7: The marginal theory of distribution makes an assertion that the price of any factor depends upon its marginal?
A) utility B) productivity C) rate of substitution D) revenue
Answer: B) productivity.
Explanation: The marginal theory of distribution asserts that the price of any factor of production depends upon its marginal productivity. This means that the price of a factor of production is determined by the additional output that is produced by adding one more unit of that factor of production.
Question 8: In order to increase its profit margin, the monopolist can manipulate
A) both price and output B) either price or output C) only its price D) only its output
Answer: A) both price and output.
Explanation: A monopolist can manipulate both price and output in order to increase its profit margin. It can increase the price of its product by reducing its output or vice versa, depending on the prevailing market conditions.
Question 9: For purely competitive industry, a fundamental requirement of the demand curve faced by individual firms is that it should be?
A) downward sloping and price inelastic B) perfectly price elastic C) downward sloping but price inelastic D) perfectly price inelastic
Answer: B) perfectly price elastic.
Explanation: In a purely competitive industry, the demand curve faced by individual firms is perfectly elastic, which means that the firm can sell any quantity of its product at the prevailing market price. This is because there are many firms producing homogeneous products, and consumers have perfect information about the prices charged by each firm.
Question 10: The merging of firms engage in different stages of production and marketing is called?
A) external economies of scale B) vertical integration C) horizontal integration D) economic union
Answer: B) vertical integration.
Explanation: The merging of firms that engage in different stages of production and marketing is called vertical integration. This strategy is often used by firms to increase their control over the supply chain and reduce transaction costs.