Monopolies are allocatively inefficient because:

They restrict the output to keep the price higher than under perfect competition.
They charge a price higher than the marginal cost.
Both (a) and (b) are correct.
Both (a) and (b) are incorrect

Decreasing returns to scale
Constant returns to scale.
Increasing returns to scale.
Positive fixed cos

Which of the following is correct?

If marginal revenue is positive and falling, total revenue will rise at a decreasing rate.
Total revenue is equal to price times the quantity sold.
Under perfect competition, total revenue is equal to marginal revenue times the quantity sold.
All of the above

The law of diminishing returns:

States that beyond some level of a variable input, the average product of that variable input begins to increase steadily.
Assumes that there is technological improvement over time.
States that beyond some level of a variable input, the marginal product of that variable begins to decrease steadily.
Informs a firm whether or not to use a factor input

A firm’s production function:

Shows how much output and the level of input required for the firm to maximize profits
Establishes the minimum level of output that can be produced using the available resources
Shows the maximum output that can be produced with a given amount of inputs with available technology
Shows labour force which is employed

An individual firm in a perfectly competitive market faces a demand curve which is:

Downward sloping
Relatively inelastic
Perfectly elastic
Upward sloping

“I am making a loss, but with the rent I have to pay, I can’t afford to shut down at this point of time.” If this entrepreneur is attempting to maximize profits or minimize losses, his behaviour in the short run is:

Rational, if the firm is covering its variable cost
Rational, if the firm is covering its fixed cost
Irrational, since plant closing is necessary to eliminate losses
Irrational, since fixed costs are eliminated if a firm shuts dow

Which of the following situation does not lead to an increase in equilibrium price?

An increase in demand, without a change in supply
A decrease in supply accompanied by an increase in demand
A decrease in supply without a change in demand
An increase in supply accompanied by a decrease in demand

Which of the following is incorrect?

The cross elasticity of demand for two substitutes is positive
The income elasticity of demand is the percentage change in quantity demanded of a good due to a change in the price of a substitute
The cross elasticity of demand for two complements is negative
The price elasticity of demand is always negative, except for Giffen good

Which of the following statements is correct?

In a two-good economy, the production possibilities frontier reflects the maximum amount of one good that can be produced when a given amount of the other good is produced.
Microeconomics is the study of the behaviour of the economy as a whole.
Positive economics focuses on welfare of the people of a society
None of the above

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