Short Answer TypeWhat is the relation between Average Variable Cost and Average Total Cost, if Total Fixed Cost is zero?
A firm is able to sell any quantity of a good at a given price. The firm's marginal revenue will be:
(Choose the correct alternative):
(a) Greater than Average Revenue
(b) Less than Average Revenue
(c) Equal to Average Revenue
(d) Zero
Differentiated products is a characteristic of: (Choose the correct alternative):
(a) Monopolistic competition only
(b) Oligopoly only
(c) Both monopolistic competition and oligopoly
(d) Monopoly
Demand curve of a firm is perfectly elastic under:(Choose the correct alternative)
(a) Perfect competition
(b) Monopoly
(c) Monopolistic competition
(d) Oligopoly
A consumer consumes only two goods X and Y. Marginal utilities of X and Y is 3 and 4 respectively. Prices of X and Y are Rs 4 per unit each. Is consumer in equilibrium? What will be further reaction of the consumer? Give reasons.
Consumer will attain its equilibrium (maximum satisfaction) at the point, where marginal utility of a product divided by the marginal utility of a rupee, is equal to the price.
Consumer’s equilibrium = 
In case of two goods, a consumer equilibrium attain where:
For goods X,
For goods Y,
Here, 
Hence consumer is not in equilibrium, Thus, in order to attain equilibrium consumer will increase the consumption of good Y and decrease the consumption of good X.
What will be the effect of 10 percent rise in price of a good on its demand if price elasticity of demand is (a) Zero, (b)-1, (c)-2.
If the prevailing market price is above the equilibrium price, explain its chain of effects.
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