IGCSE Economics Paper-1: Specimen Questions with Answers 40 - 41 of 64

Question 40

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Question

MCQ▾

The shape of PPC is because of:

The shape of PPC

The Shape of PPC

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Choices

Choice (4)
a.Zero opportunity cost
b.Increasing opportunity cost
c.Constant opportunity cost
d.Decreasing opportunity cost

Answer

b.

Explanation

  • The shape of PPC is concave to the origin, which is due to increasing marginal opportunity cost, which means the additional sacrifice made by an economy when they shift resources and technology from production of one commodity to the other.
  • As resources are use specific, if more units of one commodity suppose X has to be produced then more of units of other commodity Y will be sacrificed since the resources are limited and are not equally efficient in production of both the commodities, which will result in increasing marginal opportunity cost due to which the shape of the production possibility curve is concave towards the origin.
  • Thus, as we move down the production possibility curve the opportunity cost increases.

Question 41

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Question

MCQ▾

The diagram given below depicts the revenue and cost curves of a firm, which starts earning profit after point B. , attach graph

Equilibrium quantity will increase but the price will not ch …

Equilibrium Quantity Will Increase but the Price Will Not Ch …

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What are the correct labels for curve 1 and 2?

Choices

Choice (4)
a.Curve 1-Variable cost, Curve 2-Marginal cost
b.Curve 1-Total revenue, Curve 2- Total cost
c.Curve 1-Average cost, Curve 2- Total cost
d.Curve 1-Average revenue, Curve 2- Average cost

Answer

b.

Explanation

  • Curve 1 represents Total revenue curve in case of perfect competition and Curve 2 represents Total cost curve of the firm, based on the total cost and total revenue, the firm calculate its quantity, which will provide maximum profit to the firm. The total revenue curve shows the extent of market control by a firm. Whereas, in case of perfect competitive firm which has no control over the market the total revenue curve will be a straight line.
  • A curvetotal cost curve, which represents graphically the relation between the total costs incurred by a firm in the production, is known as the total cost curve. The shape of TC curve is inverted S shape curve. The slope of the is marginal cost of the firm.
  • Profit can be calculated by using the following formula;

Profit = Total revenue−Total cost

Or

Profit

Profits will be highest where the total revenue exceeds the total cost, or losses will be where total revenue is less than total.

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