MICROECONOMICS 

1 .Explain the relationship between different determinant of demand and the quantity demanded

2 .State the law of supply. Why does a supply curve have a positive slope?    

3 .What is opportunity cost? Give some examples of opportunity cost.    

CASE STUDY
Variety is the spice of Life - Indian Fast Food Industry
Walk down the streets of Delhi (or for that matter any big city), one will come across number of food joints, starting from the local „Dhaba? To one time favourite food the Delhites „Nirula? S? To the KFC? s and Mc Donald's. The fast-food industry has a sizable number of new entrants and the trend seems to continue. An obvious reason for such industrial growth seems to be the „cosmopolitan? Taste pattern developed by us. An average Indian 5-10 years back would imagine a masala dosa or a burger to be a fast food. We have come a long way from those days. Today’s Indians, and by that we do not mean only the „X-generation?, but, school children, middle aged executives, grandfathers and house wives, all are fond of fast food, In fact, fast food is too general a term, Today one has to specify, whether he wants a „fish-o-fillet? Burger from Mc Donald?s or a „pan pizza? From the Pizza Hut or the special KFC fried chicken, the list of various types of fast food just goes on.
Technically speaking, it is the same chicken, which will be simply roasted with the standard Indian margination in a road side tandoor, while in a KFC outlet, the chicken will be fried in the famous KFC batter, and served with finger chips, coleslaw and the Coke. You feel you have been transported to the country of Uncle Sam. There lies the difference. For the consumer, it is a different product.
The „product? Is differentiated in a number of ways starting from the way you present, the ambience of the eating joint to the location and duration of working hours. The shop owners harp on this factor and bolster their sales based on this „product differentiation? In their advertisements.
After all a Mc Chicken burger, with its declared calorie content, rendered by well-dressed smart boys and girls in the posh market place is not the same as a simple chicken burger, kept in the hot case of a local shop. Product Differentiation is costly. Developing a new variety of cheese to be used on your pizza and to suit the Indian taste requires some laboratory research, market research and aggressive sales effort. Opening another Mc Donald? S joint in another busy market place all these are costly affair. But, this differentiation brings in additional revenue. A new chicken burger with lesser calorie content than an average burger will attract the young girls. A KFC outlet with a special floor filled with balls and balloons will be a child’s delight. Since this is an industry, where anybody with a decent budget can enter, it almost becomes an obligation for the existing ones to have a continues product innovation and differentiation to continue in the business, in the long term.        

1. Describe how you will justify that the above example is describing monopolistic competition. Can you draw a parallel example for another industry? 
 

2. What are the marketing strategies followed under monopolistic competition?   

Question No.  1    Marks - 10
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The goods that can be substituted with each other are known as:    
 
Options    
    
Complementary goods

Complementary goods

Inferior goods

Veblen goods

Question No.  2    Marks - 10
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Law of demand state that:    
 
Options    
    
Price is inversely proportional to quantity demanded

Price is inversely proportional to 1/quantity demanded

Not related

None of the above

Question No.  3    Marks - 10
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Law of supply states that:    
 
Options    
    
Price is inversely proportional to supply

Price is inversely proportional to 1/suppy

Price and supply are constant

Price and supply are not related

Question No.  4    Marks - 10
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At equilibrium price:    
 
Options    
    
Quantity demanded> Quantity supplied

Quantity demanded< Quantity supplied

Quantity demanded is not equal to quantity supplied

Quantity demanded is equal to Quantity supplied

Question No.  5    Marks - 10
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Demand for a Quantity is perfectly inelastic when:    
 
Options    
    
When quantity demanded changes with price

When quantity does not change with price

Quantity demanded increases with decrease in price

Quantity demanded decreases with increase in price

Question No.  6    Marks - 10
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Which of the following is the best example of the law of demand?    
 
Options    
    
As the price of fur coats decreases, more consumers will buy them.

As the price of fur coats increases, more consumers will buy them.

As the price of fur coats decreases, people buy more wool jackets.

As the price of fur coats increases, people buy more leather jackets.

Question No.  7    Marks - 10
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Q7The price of an item drops 10% in such a way that the Price Elasticity of Demand of that item is unit-elastic. We would expect the quantity of the item demanded to    
 
Options    
    
drop by 5%

stay the same

increase by 5%

increase by 10%

Question No.  8    Marks - 10
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Law of variable proportions is not based on which of the following assumptions: -    
 
Options    
    
Constant Technology

Homogeneous factor units

Short-Run

Factor proportions are constant

Question No.  9    Marks - 10
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Increasing returns to a scale refer to a situation when all factors of production are increased, output:-    
 
Options    
    
Increases at a higher rate

Increases at a slower rate

Output remains the same

Is constant

Question No.  10    Marks - 10
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The main cause of the operation of diminishing returns to scale is that:-    
 
Options    
    
Internal and external economies<internal and external diseconomies

Internal and external economies> internal and external diseconomies

Internal and external economies= internal and external diseconomies

None of the above

Question No.  11    Marks - 10
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Which of the following is not an external economy:-    
 
Options    
    
Economies of concentration

Managerial economies

Economies of Disintegration

Economies of Localisation

Question No.  12    Marks - 10
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Implicit cost is:-    
 
Options    
    
Cost of payments for resources bought or hired by the firm

Cost of self owned resources and services

Cost borne by the society as a whole

None of the above.

Question No.  13    Marks - 10
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Total cost is equal to:-    
 
Options    
    
TC=FC+VC

TC=FC-VC

TC=VC-FC

TC=FC+VC/2

Question No.  14    Marks - 10
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The relationship between Average Cost Curve and Marginal Cost Curve of a firm is:-    
 
Options    
    
When AC is falling, MC is falling at a much faster rate and stays below AC.

At lowest point of the AC curves MC becomes equal to AC.

When AC starts rising,MC rises at a much faster rate & the MC curve is always above the AC curve

All the above.

Question No.  15    Marks - 10
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Increasing returns to scale for a firm are shown graphically by    
 
Options    
    
returns to scale have nothing to do with the shape of the long-run average cost curve.

a horizontal long-run average cost curve.

a vertical long-run average cost curve.

an upward-sloping long-run average cost curve.

Question No.  16    Marks - 10
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When cost curves are drawn for a firm, all of the following are generally assumed EXCEPT    
 
Options    
    
average fixed costs are constant.

firm is too small to influence factor prices.

average variable cost initially declines, and then rises at higher output levels.

marginal product of the variable factor eventually declines.

Question No.  17    Marks - 10
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Consumer surplus    
 
Options    
    
is the difference between what the consumer is willing to pay for all the units consumed and what he/she actually paid.    

is the total value that a consumer receives from a purchase of a particular good.

is a measure of the gains a consumer receives in the market.

None of Above

Question No.  18    Marks - 10
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The supply curve remains the same if there is a change in    
 
Options    
    
the number of suppliers of the commodity

technology.

the price of the good

None of the above

Question No.  19    Marks - 10
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For an inferior good, the quantity demanded    
 
Options    
    
does not change when income rises or falls.

rises when income falls.

falls when income falls.

None of the above

Question No.  20    Marks - 10
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The law of diminishing returns states that if increasing quantities of a variable factor are applied to a given quantity of fixed factors, then    
 
Options    
    
the marginal product and the average product of the variable factor will eventually decrease.

total product will eventually begin to fall.

the average product will eventually decrease with constant marginal product.

None of the above

Question No.  21    Marks - 10
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The opportunity cost of money that a firm's owner has invested is an example of    
 
Options    
    
implicit costs.

direct production costs.

accounting costs.

None of the above

Question No.  22    Marks - 10
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In the short run, the firm's product curves show (TP= Total Product, MP is marginal product AP is average product)    
 
Options    
    
TP is at its maximum when MP = O.

TP begins to decrease when AP begins to decrease.

when MP > AP, AP is decreasing.

None of the above

Question No.  23    Marks - 10
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A fall in the price of raw milk used in the production of ice cream will    
 
Options    
    
decrease the supply of ice cream, causing the supply curve of ice cream to shift to the left.

decrease the demand for ice cream.

increase the supply of ice cream, causing the supply curve of ice cream to shift to the right.

None of the above

Question No.  24    Marks - 10
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A monopolistically competitive firm is like a monopoly firm insofar as    
 
Options    
    
both face perfectly elastic demand.

both earn an economic profit in the long run.

both have MR curves that lie below their demand curves.

neither is protected by high barriers to entry.

Question No.  25    Marks - 10
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A monopolistically competitive firm is like a perfectly competitive firm insofar as    
 
Options    
    
both face perfectly elastic demand.

both earn an economic profit in the long run.

both have MR curves that lie below their demand curves.

neither is protected by high barriers to entry.

Question No.  26    Marks - 10
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Product differentiation    
 
Options    
    
means that monopolistically competitive firms can compete on quality and marketing.

occurs when a firm makes a product that is slightly different from that of its competitors.

makes the firm?s demand curve downward sloping.

All of the above answers are correct

Question No.  27    Marks - 10
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If a collusive agreement in a duopoly maximizes the industry?s profit,    
 
Options    
    
each firm must produce the same amount.

the industry level of output is efficient.

industry marginal revenue must equal industry marginal cost at the level of total output.

total output will be greater than without collusion

Question No.  28    Marks - 10
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A firm that has a kinked demand curve assumes that, if it raises its price,_________ of its competitors will raise their prices and that, if it lowers its price,_________of its compititors will lower their prices.    
 
Options    
    
all; all

none; all

all; none

none; none

Question No.  29    Marks - 10
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In the dominant firm model of oligopoly, the large firm acts like    
 
Options    
    
an oligopolist.

a monopolist.

a monopolistic competitor.

a perfect competitor.

Question No.  30    Marks - 10
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Limit pricing refers to    
 
Options    
    
The fact that a monopoly firm always sets the highest price possible.

A situation in which a firm might lower its price to keep potential competitors from entering its market.

How the price is determined in a kinked demand curve model of oligopoly.

none of the above

Question No.  31    Marks - 10
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If marginal product is below average product:    
 
Options    
    
The total product will fall

The average product will fall

Average variable costs will fall

Total revenue will fall

Question No.  32    Marks - 10
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The law of diminishing returns assumes:    
 
Options    
    
There are no fixed factors of production

There are no variable factors of production

Utility is maximised when marginal product falls

Some factors of production are fixed

Question No.  33    Marks - 10
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When firms collude to set prices, their individual demand curves become relatively more elastic.    
 
Options    
    
true

false

may be

None of the above.

Question No.  34    Marks - 10
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Oligopolists are less likely to experience price rigidity when they have excess capacity than when they are near full capacity    
 
Options    
    
true

false

may be

none of the above

Question No.  35    Marks - 10
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The resources in an economy are:    
 
Options    
    
Constantly increasing

Fixed at any moment

Constantly increasing

None of the above

Question No.  36    Marks - 10
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Economic growths can be shown by:    
 
Options    
    
An inward shift of the production possibility frontier

A movement down the production possibility frontier

An outward shift of the production possibility frontier

All

Question No.  37    Marks - 10
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The marginal productivity theory states that under perfect competition, price of each factor of production will be:-    
 
Options    
    
Equal to its marginal productivity

More than its marginal productivity

Less than its marginal productivity

Equal to or more than its marginal productivity.

Question No.  38    Marks - 10
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The factor price for the industry is determined by the point where:-    
 
Options    
    
Demand > Supply of a factor

Demand< Supply of a factor

Demand =Supply of a factor

None of the above.

    Marks - 10
________________________________________
Which of the following is not an assumption of Marginal Productivity Theory:-    
 
Options    
    
Homogeneous factors

Perfect Competition

Short-run analysis

Law of diminishing marginal returns

Question No.  40    Marks - 10
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In order to attain the equilibrium position a firm will employ laborers up to a point    
 
Options    
    
MRP>wage rate

MRP<wage rate

MRP <=wage rate

MRP=wage rate