Economics - Economics Section 1

6. A firm’s profit is maximized when:

  • Option : B
  • Explanation : A firm’s profit is maximized when marginal revenue is equal to marginal cost.
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7. A firm plans to expand production by 500 units. The marginal product per day for one additional unskilled laborer is 250 units and one additional skilled worker is 500 units. Wages per day are £150 for an unskilled labor and £280 for a skilled worker. The firm should hire:

  • Option : B
  • Explanation : The firm can hire two unskilled workers for 150 x 2 = 300 or one skilled worker for 280. The firm will minimize costs at the higher level of production by hiring one additional skilled worker at a total cost of 280.
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8. A market structure characterized by few sellers and high barriers to entry into or exit from the industry is best described as:

  • Option : B
  • Explanation : In an oligopoly, we have relatively few sellers and the barriers to entry into or exit from the industry are high.
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9. A market structure characterized by many sellers and high advertising and marketing expenditure is best described as:

  • Option : A
  • Explanation : In monopolistic competition, we have many sellers, the products are differentiated and the advertising and marketing expenses are high.
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10. Advertising is least likely used in a:

  • Option : C
  • Explanation : In perfect competition, the product cannot be differentiated by advertising or any other means.
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