Economics - Study Mode

[#1421] Which is a condition for existence of monopoly?
Correct Answer

(D) No close substitute

Explanation

Solution: No close substitute is a condition for existence of monopoly. If a close substitute exists, then the monopoly cannot exist. Remember, a monopoly can only exist when the cross-elasticity of the product that the monopolist produces is zero.

[#1422] When price elasticity of demand for normal goods is calculated, the value is always
Correct Answer

(B) Negative

Explanation

Solution: When price elasticity of demand for normal goods is calculated, the value is always Negative. The PED is the percentage change in quantity demanded in response to a one percent change in price. The PED coefficient is usually negative, although economists often ignore the sign. Demand for a good is relatively inelastic if the PED coefficient is less than one (in absolute value).

[#1423] If the demand for a commodity is inelastic, an increase in its pice will cause the total expenditure of the consumers of the commodity to
Correct Answer

(B) Increase

Explanation

Solution: If the demand for a commodity is inelastic, an increase in its pice will cause the total expenditure of the consumers of the commodity to Increase. When demand is inelastic, a fall in the price of a commodity leads to fall in total expenditure on it. On the other hand, when price increases, total expenditure also increases.

[#1424] Which one of the following is the condition of equilibrium for the monopolist?
Correct Answer

(A) MR=MC

Explanation

Solution: MR=MC is the condition of equilibrium for the monopolist. The conditions for Equilibrium in Monopoly are the same as those under perfect competition. The marginal cost (MC) is equal to the marginal revenue (MR).

[#1425] In case of monopoly
Correct Answer

(D) Marginal revenue is always less than average revenue

Explanation

Solution: In case of monopoly, Marginal revenue is always less than average revenue. A monopolist's marginal revenue is always less than or equal to the price of the good. Marginal revenue is the amount of revenue the firm receives for each additional unit of output.