Collusive oligopoly refers to a situation where firms
A Compete independently
B Follow perfect competition
C Cooperate to fix price and output
D Always engage in price wars
In collusive oligopoly, firms form agreements to jointly determine price or output to maximize collective profits.
The primary objective of collusion among oligopolists is to
A Increase output
B Reduce cost
C Maximize joint profits
D Increase market entry
Collusion aims at monopoly-like profit by restricting competition among firms.
A cartel is best described as
A A government price-fixing body
B A buyers’ association
C A formal collusive agreement among firms
D An informal market practice
A cartel is a formal agreement among oligopolistic firms to control price or output.
OPEC is a classic example of
A Perfect competition
B Monopolistic competition
C Cartel
D Monopoly
OPEC is an international oil cartel coordinating output and prices among member countries.
Collusive agreements often break down because
A Demand is stable
B Firms have identical costs
C Individual firms cheat for higher profits
D Government supports collusion
Each firm has an incentive to secretly undercut agreed prices to increase its own sales.
Tacit collusion means
A Written agreements among firms
B Government-enforced pricing
C Informal understanding without explicit agreement
D Price competition
Tacit collusion occurs when firms implicitly coordinate without formal contracts.
Price leadership is an example of
A Perfect competition
B Explicit collusion
C Implicit collusion
D Monopoly pricing
Firms follow a leader’s price without formal agreement, indicating implicit collusion.
In price leadership, the leader is usually the firm that
A Has highest cost
B Is smallest in size
C Has dominant market share or lowest cost
D Is a new entrant
Cost-efficient or dominant firms can influence others to follow their pricing decisions.
Non-collusive oligopoly is characterized by
A Joint profit maximization
B Independent decision-making with strategic behavior
C Government price fixing
D Uniform pricing always
Firms act independently but consider rivals’ possible reactions.
The main reason for price rigidity in non-collusive oligopoly is
A Perfect elasticity of demand
B Fear of price wars
C Government regulation
D Free entry of firms
Firms avoid changing prices due to fear of retaliatory actions by rivals.
Game theory is mainly used to study
A Perfect competition
B Monopoly pricing
C Strategic behavior in oligopoly
D Consumer surplus
Game theory explains decision-making when outcomes depend on rivals’ actions.
A Nash equilibrium occurs when
A Firms cooperate fully
B Each firm chooses best strategy given others’ strategies
C Profits are zero
D Demand is perfectly elastic
No firm can improve its payoff by unilaterally changing strategy.
In oligopoly, advertising is mainly used to
A Reduce costs
B Increase product differentiation
C Eliminate rivals
D Fix prices
Non-price competition helps firms avoid price wars and maintain market share.
Factor pricing refers to determination of
A Product prices
B Factor rewards like rent, wages, interest, profit
C Market demand
D Consumer surplus
Factor pricing explains how income is distributed among factors of production.
Rent in economics is the reward for
A Labour
B Capital
C Land
D Entrepreneurship
Rent is payment for the use of land and other natural resources.
According to Ricardian theory, rent arises due to
A Scarcity of capital
B Differences in fertility of land
C Monopoly power
D Government taxation
Rent arises because lands differ in fertility and productivity.
The least fertile land in use is known as
A Superior land
B Marginal land
C Intra-marginal land
D Surplus land
Marginal land earns no rent and sets the standard for rent determination.
Economic rent is the surplus over
A Fixed cost
B Transfer earnings
C Total cost
D Marginal revenue
Economic rent is income above the minimum required to keep a factor in its current use.
Wages are the reward for
A Capital
B Labour
C Land
D Entrepreneurship
Wages compensate labour for physical or mental effort.
Subsistence theory of wages was given by
A Adam Smith
B Ricardo
C Karl Marx
D Marshall
Ricardo argued wages tend toward subsistence level in the long run.
According to subsistence theory, wages tend to
A Rise indefinitely
B Fall to zero
C Remain at subsistence level
D Equal marginal product
Population changes push wages back to subsistence level.
Modern wage theory emphasizes
A Cost of production
B Demand and supply of labour
C Custom and tradition
D Government regulation
Market forces of demand and supply determine wages.
Interest is the reward for
A Labour
B Land
C Capital
D Entrepreneurship
Interest compensates owners of capital for its use.
According to classical theory, interest is determined by
A Demand and supply of capital
B Productivity of capital only
C Time preference
D Government policy
Classical economists viewed interest as price of capital.
Keynes’ liquidity preference theory explains interest as a reward for
A Abstinence
B Waiting
C Parting with liquidity
D Risk-taking
Interest compensates individuals for giving up liquidity.
Liquidity preference depends on
A Income, price level, profit
B Transactions, precautionary, speculative motives
C Rent, wages, profit
D Demand elasticity
Keynes identified three motives behind holding money.
Profit is the reward for
A Labour
B Land
C Capital
D Entrepreneurship
Entrepreneurs earn profit for organizing production and bearing risk.
According to Schumpeter, profit arises due to
A Risk-bearing
B Monopoly power
C Innovation
D Abstinence
Innovation creates temporary monopoly profits.
According to Knight, profit is a reward for
A Labour management
B Risk-bearing
C Uncertainty-bearing
D Capital investment
Profit arises from bearing non-insurable uncertainty.
Normal profit is treated as
A Reward for risk only
B Part of cost of production
C Surplus income
D Rent
Normal profit is necessary to keep entrepreneur in business.
Supernormal profit exists when
A Profit equals zero
B Profit is less than normal
C Profit exceeds normal level
D Profit equals wages
Excess profit above normal profit is supernormal profit.
Profit disappears in long run under perfect competition because
A Demand falls
B Costs rise
C Entry of new firms
D Government control
Free entry eliminates abnormal profits.
Transfer earnings refer to
A Total income of factor
B Minimum payment needed to retain factor in present use
C Surplus income
D Government transfer
Transfer earnings are opportunity cost of factor services.
Rent can exist even if supply of land is
A Perfectly elastic
B Perfectly inelastic
C Increasing
D Decreasing
Land supply is fixed; rent arises from scarcity and differential fertility.
Quasi-rent arises in the
A Long run
B Short run
C Very long run
D Secular period
Quasi-rent is temporary surplus in short run for man-made factors.
Wages paid above transfer earnings generate
A Economic rent
B Quasi-rent
C Interest
D Profit
Any surplus above minimum required payment is economic rent.
Factor pricing under perfect competition assumes
A Factor immobility
B Monopsony
C Marginal productivity principle
D Government wage fixation
Factors are paid according to their marginal productivity.
According to marginal productivity theory, a factor is employed until
A AP = MP
B MP = Price of factor
C Value of MP equals factor price
D MP becomes zero
Profit maximization requires VMP = factor price.
If wage rate exceeds value of marginal product, employer will
A Hire more labour
B Reduce labour employment
C Increase wages further
D Stop production
Labour is reduced until VMP equals wage rate.
Interest rate falls when
A Money supply decreases
B Liquidity preference increases
C Money supply increases
D Demand for money rises
Higher money supply reduces interest rate under Keynesian theory.
Which factor reward is most uncertain?
A Rent
B Wages
C Interest
D Profit
Profit fluctuates due to uncertainty and market conditions.
Economic rent can arise for labour when
A Labour supply is perfectly elastic
B Labour has unique skills
C Unemployment exists
D Wages are fixed by law
Scarce skills earn wages above transfer earnings.
According to modern theory, wages depend mainly on
A Subsistence needs
B Bargaining power
C Demand and supply of labour
D Government rules
Market forces primarily determine wage levels.
A monopsony in labour market exists when
A Many buyers of labour
B One buyer of labour
C Many sellers of labour
D Perfect competition
Single employer dominates labour demand.
In monopsony, wages are generally
A Higher than competitive wages
B Equal to marginal revenue product
C Lower than competitive wages
D Fixed by workers
Monopsonist exploits labour by paying lower wages.
Rent does not enter cost of production because
A Land is free
B Rent is surplus
C Land supply is elastic
D Rent is tax
Rent is surplus over transfer earnings and does not affect price.
According to Keynes, profit expectations influence
A Rent
B Wages
C Investment
D Liquidity preference
Higher expected profits encourage investment spending.
The entrepreneur performs all EXCEPT
A Risk-bearing
B Innovation
C Organization
D Routine labour work
Routine labour is not an entrepreneurial function.
Factor pricing theories help explain
A Price determination of goods
B Distribution of national income
C Inflation
D Business cycles
They explain how income is shared among land, labour, capital, and enterprise.
The most important contribution of factor pricing theory is explaining
A Consumption patterns
B Market demand
C Income distribution among factors
D Output growth
Factor pricing theories explain how rewards are determined for each factor of production.