The Supply Curve(11th Grade > Economics - 1 ) Questions and answers for exam Preparation

11th Grade > Economics - 1

THE SUPPLY CURVE MCQs

Total Questions : 26 | Page 1 of 3 pages

Question 1. The price of a good changes from 10 to 20 and quantity supplied changes from 100 to 150. What is the elasticity of supply?

0.25
0.5
1
2

Discuss Question

Answer: Option C. -> 1
:
C
%change in price =

\frac{20 - 10}{10} \times 100 = 100 %

%change in quantity =

\frac{150 - 100}{100} \times 100 = 50 %

E l a s t i c i t y = \frac{50}{100} = 0.5

Question 2. For a price-taking firm, willingness to accept is equal to the ______.

marginal cost
price
average total cost
marginal revenue

Discuss Question

Answer: Option A. -> marginal cost
:
A
For a price-taking firm, willingness to accept is equal to the marginal cost. At any price less than the marginal cost, the firm will not produce an additional unit.

Question 3. At the market price of Rs 10, a firm supplies 4 units of output. The market price increases to Rs 30. The price elasticity of the firm’s supply is 1.25. What quantity will the firm supply at the new price?

Discuss Question

Answer: Option C. -> 14
:
C
Given that

p_{0} = R s 10, p_{1} = R s 30, q_{0} = 4, ϵ_{s} = 0.5, Δ p = p_{1} - p_{0} = R s 20

ϵ_{s} = \frac{Δ q}{Δ p} \times \frac{p_{0}}{q_{0}} ϵ_{s} = \frac{Δ q}{20} \times \frac{10}{4} = 1.25 Δ q = \frac{1.25 \times 4 \times 20}{10} Δ q = 10 q_{1} = q_{0} + Δ q = 14

Question 4. Which of the following rules should be followed by a supplier for profit maximization?

Keep producing until the total revenue is equal to total cost.
produce an additional unit of good if the price is greater than the marginal cost
do not produce an additional unit if its marginal cost is higher than the marginal cost of the previously produced units
Always produce an additional unit when the marginal revenue is greater than zero.

Discuss Question

Answer: Option B. -> produce an additional unit of good if the price is greater than the marginal cost
:
B
If the price is greater than the marginal cost of the next unit, the firm should continue production as there is a profit on producing the additional unit.

Question 5. The supply curve of rare collectables will be?

perfectly elastic
perfectly inelastic
unitary elastic
none of these

Discuss Question

Answer: Option B. -> perfectly inelastic
:
B
The quantity of rare collectables is limited and as such, do not change with price. Hence, the supply curve would be perfectly inelastic.

Question 6. The minimum point of a firm's LRAC is Rs 8, at which it produces a quantity of 500. Which of the following price-quantity pairs (p,q) can lie on the supply curve?

(5,400)
(10,400)
(7,600)
(9,700)

Discuss Question

Answer: Option D. -> (9,700)
:
D
The supply curve is the portion of the MC curve above the LRAC. It starts from the minimum point of the LRAC. Since the supply curve is upward sloping, for any point on the supply curve, the price will be greater than Rs 8 and quantity greater than 500 units. Only option D satisfies this condition.

Question 7. Which of the following is not a determinant of a good's supply?

The cost of labour used to produce the good
The technology used for production
The number of sellers of the good
The income of the consumers who buy the good.

Discuss Question

Answer: Option D. -> The income of the consumers who buy the good.
:
D
Income of consumers who buy a good will only affects the demand for the good. All other factors will affect the supply.

Question 8. Study the supply curve given below and answer the following question.

At what price is the producer surplus equal to $2?

Discuss Question

Answer: Option C. -> $3
:
C
Producer surplus,

Π

is the area above the supply curve and below the price line.
It can be seen that at a price of $3,

Π = \frac{1}{2} \times (3 - 1) \times 2 = $ 2

Question 9. The profit level that is just enough to cover the economic costs of the firm is called ___ profit.

Discuss Question

:
The profit level that is just enough to cover the economic costs of the firm is called normal profit.

Question 10. The costs (LRAC) and prices (P) for four firms are given in the options below. Which of these cannot lie on the long-run supply curve of a firm?

LRAC = Rs 20, P = Rs 20
LRAC = Rs 25, P = Rs 20
LRAC = Rs 20, P = Rs 25
LRAC = Rs 25, P = Rs 25

Discuss Question

Answer: Option B. -> LRAC = Rs 25, P = Rs 20
:
B
A firm does not supply when the market price is less than the averagecost. For option B, P < LRAC.