Economics MCQ Questions and Solutions with Explanations | Commerce

If two goods are complements, this means that a rise in the price of one commodity will induce a downward shift in demand for the other commodity.

In the short run if a perfectly competitive firm finds itself operating at a loss, it will continue to operate as long as it covers its variable cost.

A competitive firm maximizes profit at the output level where Price equals marginal cost, The slope of the firm's profit function is equal to zero and Marginal revenue equals marginal cost.

A necessity is defined as a good having an income elasticity of demand between zero and 1. If income elasticity of demand of a commodity is less than 1, it is a necessity good. If the elasticity of demand is greater than 1, it is a luxury good or a superior good. A zero income elasticity of demand occurs when an increase in income is not associated with a change in the demand of a good.

In the long run, any firm will eventually leave the industry if Price does not at least cover average total cost. Exit is the long-run process of firms reducing production and shutting down in response to industry losses.

If a firm's average variable cost curve is rising, its marginal cost curve must be above the average variable cost curve. If average costs are falling then marginal costs must be less than average while if average costs are rising then marginal must be more than average. Marginal cost on its way up must cut the cost curve at its minimum point. If Marginal Cost is less than Average Variable Cost, then Average Cost goes down.

When a market is in equilibrium No shortage exists, Quantity demanded equals quantity supplied and A price is established that clears the market.

A market structure in which many firms sell products that are similar but not identical is known as Monopolistic competition. Monopolistic competition characterizes an industry in which many firms offer products or services that are similar, but not perfect substitutes. Barriers to entry and exit in a monopolistic competitive industry are low, and the decisions of any one firm do not directly affect those of its competitors.

Economics is the study of how society manages its scarce resources. Resources are scarce in that we have fewer resources than we wish. Economists study how people make decisions about buying and selling, and saving and investing.

If there are implicit costs of production Economic profit will be less than accounting profit. Economic profit is total revenue minus opportunity cost. Accounting profit is total revenue minus explicit cost. Opportunity costs are higher than explicit costs because opportunity costs also include implicit costs.