Question 1

Assertion (A) Many oligopolistic industries exhibit an appreciable degree of Price rigidity or stabilityReason (R) Oligopolists face a demand curve that is highly elastic for price increases and less elastic for price reductions

Accepted Answer

Oligopolistic industries often show price rigidity because firms fear losing customers if they increase prices (high elasticity) and do not gain much if they decrease prices (low elasticity), explaining the stability.

Question 2

Match the followingA B(i). Demand for inputs Hall and Hitch(ii). Oligopoly Single buyer(iii). Kinked demand theory Cartels(iv). Monopsony Derived demand Codes;

Accepted Answer

- Monopsony refers to a market situation with a single buyer.- Kinked demand theory is associated with oligopoly, explaining price stability.- Demand for inputs is related to derived demand, as inputs are demanded not for their own sake but for what they can produce.- Cartels are associated with oligopolies, where firms may collude to control prices or output, but this is not directly related to the given options.

Question 3

If the hourly wage is Rs.10, and the firm produces 5 additional units of the commodity with an additional hour of labour time, then marginal cost is

Accepted Answer

The marginal cost is calculated by dividing the change in total cost by the change in quantity. Here, the additional hour of labor costs Rs.10 and results in 5 additional units, so the marginal cost is Rs.10 / 5 units = Rs.2 per unit.

Question 4

The equilibrium level of output for a perfectly competitive marketis

Accepted Answer

In a perfectly competitive market, the equilibrium level of output is determined where marginal cost (MC) equals marginal revenue (MR). This condition ensures that firms are maximizing their profits, producing at a level where the cost of producing one more unit equals the revenue gained from selling that unit.

Question 5

The term 'monopsony' refers to

Accepted Answer

A monopsony refers to a market condition where there is only one buyer for a product or service, giving that buyer substantial power over prices and terms of sale.

Question 6

The demand curve for labour under perfectly competitive market is

Accepted Answer

The demand curve for labor under perfectly competitive market conditions is downward sloping. This reflects the law of diminishing marginal returns, where each additional unit of labor contributes less to output than the previous one, leading employers to pay less for additional workers.

Question 7

The supply curve of the input that a firm faces under a perfectly competitive market is

Accepted Answer

In a perfectly competitive market, the supply curve of the input that a firm faces is horizontal, indicating that the firm can purchase as much of the input as it wants at the market price, without affecting the price.

Question 8

The supply curve of an input that a firm faces under an imperfectly competitive market is

Accepted Answer

In an imperfectly competitive market, the supply curve of an input that a firm faces is typically upward sloping. This is because, as the demand for an input increases, its price tends to increase, reflecting the higher cost of obtaining additional units of the input.

Question 9

Let labour is the only variable input, a monopsonist maximizes his or her profit when

Accepted Answer

A monopsonist maximizes profit when the marginal product of labor (MPL) equals the marginal expense of labor (MEL), which is choice A. This condition ensures that the cost of hiring an additional unit of labor equals the revenue generated by that unit, optimizing profit.

Question 10

A profit maximizing firm under a perfectly competitive market employs more and more variable input labour until

Accepted Answer

In a perfectly competitive market, a profit-maximizing firm will continue to employ more labor until the marginal revenue product of labor (MRPL) equals the marginal expense of labor (MEL), which is also equal to the wage rate (W). This condition ensures that the firm is maximizing its profits by equating the additional revenue generated by employing one more unit of labor to the additional cost of that labor.

Question 11

To minimize cost of production at any level of output the monopsonist should continue to substitute labour and capital until

Accepted Answer

The correct condition for minimizing the cost of production is when the ratio of the marginal expense of labor (MEL) to the marginal product of labor (MPL) equals the ratio of the marginal expense of capital (MEK) to the marginal product of capital (MPK). This ensures that the last dollar spent on each input yields the same amount of output, optimizing resource allocation.

Question 12

In Chamberlin and Kinked demand curve model, the oligoposist

Accepted Answer

In the Chamberlin and Kinked demand curve models of oligopoly, firms recognize their interdependence, do not collude, and tend to keep prices constant to avoid price wars, which encompasses all the options provided.

Question 13

In the case of price leadership by the dominant firm all the firms in the purely oligopolistic industry will produce their best level of output

Accepted Answer

The answer of In the case of price leadership by...

Question 14

If an oligopolist incurs losses in the short run, then in the long run

Accepted Answer

In the long run, an oligopolist facing short-run losses may either go out of business, adjust strategies to stay in business, or find a way to break-even. The outcome depends on various factors including market conditions, the firm's ability to adapt, and competitive responses.

Question 15

Existence of large number of buyers and sellers and homogenous product is a feature of :

Accepted Answer

The existence of a large number of buyers and sellers and homogeneous products is a defining characteristic of perfect competition. In such markets, no single buyer or seller has the power to influence the price of the product, and all products are considered identical.

Question 16

Product differentiation is a characteristic of:

Accepted Answer

Product differentiation is a key characteristic of monopolistic competition, where firms sell products that are similar but not identical, allowing them to have some control over pricing.

Question 17

A firm under Perfect Competition is a:

Accepted Answer

The answer of A firm under Perfect Competition is a:
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Question 18

Selling cost is a feature of :

Accepted Answer

In monopolistic competition, firms incur selling costs to differentiate their products from competitors, as products are similar but not identical.

Question 19

Oligopoly is characterized by:

Accepted Answer

Oligopoly is characterized by a market structure with a few sellers, each of which has a significant share of the market. This allows them to have a considerable impact on market prices and competition.

Question 20

When there are only two sellers, the market is called as:

Accepted Answer

A duopoly is a market structure where there are only two sellers or producers of a product or service, making "C) duopoly" the correct answer.

Quiz 5: Microeconomics Concepts and Markets