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Economics (UGC/NET - Paper II & III)

Description: Product Pricing
Number of Questions: 15
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Tags: Product Pricing Economics UGC - NET Economic Analysis Pricing and Output under Different Forms of Market Structure Pricing and Output Under Different Forms of Market Structure
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Which of the following statements is incorrect about market-sharing cartels?

  1. Two firms enter into a market-sharing agreement on the basis of the quota system.

  2. Each firm produces and sells a heterogeneous product which is not a perfect substitute for each other.

  3. There are large number of buyers.

  4. Each firm has its own demand curve having the same elasticity as that of the market demand curve.

  5. Cost curves of the two firms are identical.

Show answer
Correct Option: B
Explanation:

This point is not true because according to the assumption of market-sharing cartel, each firm produces and sells a homogeneous product.

Which of the following economists introduced the concept of 'price leadership'?

  1. Joe S. Bain

  2. Fisher

  3. Mrs. Robinson

  4. W. Fellner

  5. Andrews

Show answer
Correct Option: D
Explanation:

W. Fellner propounded the concept of price leadership. Thus, this option is correct..

Who said that advertisements can become a life-and-death matter under oligopoly?

  1. Chamberlein

  2. Cournot

  3. Baumol

  4. Sweezy

  5. Stakelberg

Show answer
Correct Option: C
Explanation:

Prof. Baumol said this because oligopolist firms spend a lot of money on advertisement and customer service.

Which of the following statements is incorrect about low-cost price leadership model in an oligopolistic firm?

  1. There are two firms.

  2. There are few buyers.

  3. They have identical demand and marginal revenue curves.

  4. The market industry demand curve for the product is known to both the firms.

  5. The costs of the firms differ; one is a low-cost firm and the other is a high-cost firm.

Show answer
Correct Option: B
Explanation:

This option is incorrect because low-cost price leadership model in an oligopolistic firm assumes that there are large number of buyers.

Which of the following is false for Clark's Product Exhaustion approach?

  1. There is perfect competition in product markets as well as factor markets.

  2. Prices and wages are manipulated by collusive agreements.

  3. There is a single wage rate for all occupations.

  4. The same commodities are produced in the same quantities and by the same methods.

  5. The quantity of each factor is given.

Show answer
Correct Option: B
Explanation:

Clark's Product Exhaustion theorem is based upon the assumption that the prices as well as wages are not manipulated by government action or collusive agreements. This is the correct answer.

Match the following.

 
List - I List - II
1. Price Theory and Oligopoly (i) J. F. Due
2. The Nature of Capital and Income (ii) A. C. Pigou
3. Government Finance - Economics of Public sector (iii) K. W. Rothschild
4. The Economics of Welfare (iv) I. Fisher

  1. 1 - (i), 2 - (iii), 3 - (iv), 4 - (ii)

  2. 1 - (iv), 2 - (iii), 3 - (i), 4 - (ii)

  3. 1 - (ii), 2 - (iv), 3 - (i), 4 - (iii)

  4. 1 - (iii), 2 - (iv), 3 - (i), 4 - (ii)

  5. 1 - (i), 2 - (iv), 3 - (iii), 4 - (ii)

Show answer
Correct Option: D
Explanation:

Price Theory and Oligopoly was introduced by K.W. Rothschild. The Nature of Capital and Income was introduced by I. Fisher. Government Finance - Economics of Public sector was propounded by John F. Due. The Economics of Welfare was introduced by A.C. Pigou.

Match the following ||| |---|---| | List - I| List - II| |1. The theory of market economy|(i) Simon| |2. Demand under conditions of oligopoly|(ii) Barle and Means| |3. The modern corporation and private property|(iii) Sweezy| |4. Theories of decision making in economics and behavioural science |(iv) Stackelberg|

  1. 1 - (i), 2 - (iii), 3 - (iv), 4 - (ii)

  2. 1 - (iv), 2 - (iii), 3 - (ii), 4 - (i)

  3. 1 - (iii), 2 - (iv), 3 - (ii), 4 - (i)

  4. 1 - (i), 2 - (ii), 3 - (iii), 4 - (iv)

  5. 1 - (iv), 2 - (iii), 3 - (i), 4 - (ii)

Show answer
Correct Option: B
Explanation:

"The theory of market economy" was introduced by H. V. Stackelberg in 1952. "Demand under conditions of oligopoly" was propounded by Paul M. Sweezy in 1939. "The modern corporation and private property" was suggested by A. A. Barle and G. Means in 1932. "Theories of decision making in economics and behavioural science" was propounded by H. A. Simon in 1959.

Match the following.

 
List - I List - II
1. Cournot model (i) 1939
2. Stackelberg model (ii) 1838
3. Sweezy model (iii) 1952
4. G. Means (iv) 1932

  1. 1 - (i), 2 - (iii), 3 - (iv), 4 - (ii)

  2. 1 - (ii), 2 - (iii), 3 - (iv), 4 - (i)

  3. 1 - (ii), 2 - (iii), 3 - (i), 4 - (iv)

  4. 1 - (ii), 2 - (iv), 3 - (iii), 4 - (i)

  5. 1 - (iv), 2 - (iii), 3 - (ii), 4 - (i)

Show answer
Correct Option: C
Explanation:

The oldest determinate solution to duopoly problems was given by A. A. Cournot in 1838. Stackelberg proposed a solution to the duopoly problem. It was based on the assumption that each seller recognises the interdependence of other’s actions in his views in the theory of market economy in 1952. In 1939, Prof. Sweezy introduced the kinked demand curve analysis to explain price rigidities often observed in oligopolistic markets. In 1932, G. Means suggested that managers have different targets from shareholders and they are not interested in profit maximisation.

Match the following.

 
Group - I Group - II
1. Analysis of differentiated oligopoly (i) Andrews
2. Costing margin (ii) G. Dantzig
3. Cartels (iii) Sylos
4. Linear programming (iv) Fellner

  1. 1 - (iv), 2 - (ii), 3 - (i), 4 - (iii)

  2. 1 - (iii), 2 - (i), 3 - (iv), 4 - (ii)

  3. 1 - (i), 2 - (ii), 3 - (iii), 4 - (iv)

  4. 1 - (iv), 2 - (iii), 3 - (ii), 4 - (i)

  5. 1 - (iv), 2 - (i), 3 - (ii), 4 - (iii)

Show answer
Correct Option: B
Explanation:

Analysis of differentiated oligopoly was propounded by Sylos. Andrews introduced the concept of costing margin. The concept of cartels is associated with W. Fellner. Linear programming is related to George Dantzig.

Match the following.

 
Group - I Group - II
1. Behavioural model of rational choice (i) Cyert and March
2. Price behaviour of firms (ii) Williamson
3. Behavioural theory of the firm (iii) H. A. Simon
4. Managerial utility maximisation (iv) A. Silberston

  1. 1 - (i), 2 - (ii), 3 - (iii), 4 - (iv)

  2. 1 - (iv), 2 - (iii), 3 - (ii), 4 - (i)

  3. 1 - (ii), 2 - (iii), 3 - (iv), 4 - (i)

  4. 1 - (iii), 2 - (iv), 3 - (i), 4 - (ii)

  5. 1 - (i), 2 - (iii), 3 - (iv), 4 - (ii)

Show answer
Correct Option: D
Explanation:

H. A. Simon focused on behavioural model of rational choice. The idea of price behaviour of firms was given by A. Silberston. R. M. Cyert and J. C. March gave their idea jointly on a behavioural theory of the firm. Williamson developed the theory of managerial utility maximisation.

Match the following ||| |---|---| | List - I| List - II| |1. Marris|(i) Behaviourism| |2. Cyert|(ii) Minimisation of risk| |3. K. W. Roschild|(iii) Balanced rate of growth| |4. Ben|(iv) Long run survival|

  1. 1 - (i), 2 - (iii), 3 - (iv), 4 - (ii)

  2. 1 - (iii), 2 - (iv), 3 - (ii), 4 - (i)

  3. 1 - (iii), 2 - (i), 3 - (iv), 4 - (ii)

  4. 1 - (iv), 2 - (iii), 3 - (ii), 4 - (i)

  5. 1 - (i), 2 - (ii), 3 - (iii), 4 - (iv)

Show answer
Correct Option: C
Explanation:

Marris suggested his idea on managerial enterprise model which is based on balanced rate of growth. Cyert emphasised on behaviourism due to lack of time, suitable information and managerial efficiency. K. W. Roschild suggested that firm and entrepreneur protect their existence in long run. Ben suggested that the main goal of the firm is to check the entry of new firms and minimisation of risks in commodity market.

Match the following ||| |---|---| | Group - I| Group - II| |1. Profit maximisation and its implications|(i) M. Z. Kafolgis| |2. Rules of thumb and optimally imperfect decisions|(ii) W. J. Baumol| |3. Economic theory and operations analysis|(iii) T. Scitovsky| |4. Output of the restrained firm |(iv) R. E. Quant|

  1. 1 - (iv), 2 - (iii), 3 - (ii), 4 - (i)

  2. 1 - (i), 2 - (ii), 3 - (iii), 4 - (iv)

  3. 1 - (i), 2 - (iii), 3 - (iv), 4 - (ii)

  4. 1 - (iii), 2 - (iv), 3 - (ii), 4 - (i)

  5. 1 - (iv), 2 - (ii), 3 - (iii), 4 - (i)

Show answer
Correct Option: D
Explanation:

"Profit maximisation and its implications" was introduced by T. Scitovsky. "Rules of thumb and optimally imperfect decisions" was propounded by R. E. Quant. "Economic theory and operations analysis" was introduced by W. J. Baumol. "Output of the restrained firm" was propounded by M. Z. Kafolgis.

Match the following.

 
List - I List - II
1. H. A. Simon (i) 1959
2. A. Silberston (ii) 1963
3. Baumol (iii) 1970
4. Cyert and March (iv) 1964

  1. 1 - (i), 2 - (iii), 3 - (iv), 4 - (ii)

  2. 1 - (ii), 2 - (iii), 3 - (iv), 4 - (i)

  3. 1 - (iv), 2 - (iii), 3 - (ii), 4 - (i)

  4. 1 - (ii), 2 - (i), 3 - (iv), 4 - (iii)

  5. 1 - (iii), 2 - (iv), 3 - (ii), 4 - (i)

Show answer
Correct Option: A
Explanation:

H. A. Simon introduced the theories of decision making in economics and behavioural science in 1959. A. Silberston suggested the idea about price behaviour of firms in 1970. Baumol gave the rules of thumbs and optimally imperfect decisions in 1964. R. M. Cyert and J. C. March introduced a behavioural theory of the firm in 1963.

When the elasticity of demand on every point of the demand curve is equal to one, then the value of its related marginal revenue curve is

  1. equal to one

  2. less than one

  3. more than one

  4. equal to zero

  5. None of the above

Show answer
Correct Option: D
Explanation:

If the elasticity of demand on every point of the demand curve (e) is equal to one, then M R = A R [e - 1/e] .......(i) Putting the value of e into equation (i) MR = A R [1 - 1/1] = A R [1 - 1] = A R X 0 = 0

Which of the following is incorrect?

  1. d(P X Q)MR = dQ

  2. Profit = AR - TC

  3. d(T)(CMC) = dQ

  4. MR = TR(n) - TR(n - 1)

  5. MR = 2(AR)

Show answer
Correct Option: B
Explanation:

This is incorrect. Profit = TR - TC (where TR = AR or Price x Quantity) Thus, the correct formula is Profit = TR - TC(Q x AR) - TC

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