Price theory is also known as micro economics and is concerned with the economic behaviour of individual consumers, producers and resource owners. Prof. Leftwich defines Price Theory as “it is concerned with the flow of goods and services from business firms to consumers, the composition of flow and the evaluation of pricing of the component parts of the flow. It is concerned too with the flow of productive resources (or their services) from resource owners to business firms with their evaluation and with their allocation among alternative uses.”

Correct Option: D

Price theory is also known as micro economics and is concerned with the economic behaviour of individual consumers, producers and resource owners. Prof. Leftwich defines Price Theory as “it is concerned with the flow of goods and services from business firms to consumers, the composition of flow and the evaluation of pricing of the component parts of the flow. It is concerned too with the flow of productive resources (or their services) from resource owners to business firms with their evaluation and with their allocation among alternative uses.”

Unlike a perfectly competitive firm, a monopolistically competitive firm ends up choosing a level of output that is below its minimum efficient scale. When the firm produces below its minimum efficient scale, it is under-utilizing its available resources. In this situation, the firm is said to have excess capacity because it can easily accommodate an increase in production. This excess capacity is the major social cost of a monopolistically competitive market structure.

Correct Option: B

Unlike a perfectly competitive firm, a monopolistically competitive firm ends up choosing a level of output that is below its minimum efficient scale. When the firm produces below its minimum efficient scale, it is under-utilizing its available resources. In this situation, the firm is said to have excess capacity because it can easily accommodate an increase in production. This excess capacity is the major social cost of a monopolistically competitive market structure.

‘Labour’ refers to the people required to carry out a process in a business. Labour-intensive processes are those that require a relatively high level of labour compared to capital investment. These processes are more likely to be used to produce individual or personalised products, or to produce on a small scale. The costs of labour are: wages and other benefits, recruitment, training and so on. Labour intensive processes are more likely to be seen in Job production and in smaller-scale enterprises.

Correct Option: A

‘Labour’ refers to the people required to carry out a process in a business. Labour-intensive processes are those that require a relatively high level of labour compared to capital investment. These processes are more likely to be used to produce individual or personalised products, or to produce on a small scale. The costs of labour are: wages and other benefits, recruitment, training and so on. Labour intensive processes are more likely to be seen in Job production and in smaller-scale enterprises.

The interest rate is the cost of demanding or borrowing loanable funds. Alternatively, the interest rate is the rate of return from supplying or lending loanable funds. The demand for loanable funds takes account of the rate of return on capital. The rate of return on capital is the additional revenue that a firm can earn from its employment of new capital. This additional revenue is usually measured as a percentage rate per unit of time, which is why it is called the rate of return on capital. Firms will demand loanable funds as long as the rate of return on capital is greater than or equal to the interest rate paid on funds borrowed. In case of increase in interest rate, retrun on capital decreases.

Correct Option: D

The interest rate is the cost of demanding or borrowing loanable funds. Alternatively, the interest rate is the rate of return from supplying or lending loanable funds. The demand for loanable funds takes account of the rate of return on capital. The rate of return on capital is the additional revenue that a firm can earn from its employment of new capital. This additional revenue is usually measured as a percentage rate per unit of time, which is why it is called the rate of return on capital. Firms will demand loanable funds as long as the rate of return on capital is greater than or equal to the interest rate paid on funds borrowed. In case of increase in interest rate, retrun on capital decreases.

Quasi-rent is the surplus which is received in the short period because of demand exceeding the supply by the man made factors besides land. It is an analytical term in economics, for the income earned, in excess of post-investment opportunity cost, by a sunk cost investment. In general, an economic rent is the difference between the income from a factor of production in a particular use, and either the cost of bringing the factor into economic use (Classical factor rent), or the opportunity cost of using the factor, where opportunity cost is defined as the current income minus the income available in the next best use.

Correct Option: B

Quasi-rent is the surplus which is received in the short period because of demand exceeding the supply by the man made factors besides land. It is an analytical term in economics, for the income earned, in excess of post-investment opportunity cost, by a sunk cost investment. In general, an economic rent is the difference between the income from a factor of production in a particular use, and either the cost of bringing the factor into economic use (Classical factor rent), or the opportunity cost of using the factor, where opportunity cost is defined as the current income minus the income available in the next best use.