Economics Questions and Answers – Part10

181. What is opportunity cost?
Opportunity cost is also known as transfer cost, displacement cost and alternative cost. When the cost is measured by the value of the most valuable alternative commodities that could have been produced by those resources, it is called opportunity cost.

182. What is fixed cost or supplementary cost?
It means the cost for fixed factor units used in production. The fixed costs are those costs which do not vary with output in the short period.

183. What is marginal cost?
Marginal cost is the net addition made to the total cost of production by producing one more unit of the commodity.

184. What is Break-Even Point (BEP)?
Break-Even Point may be explained as that level of sales at which total revenues equal total cost and the net income is equal to zero. It is known as non-profit no-loss point.
Symbolically: Fixed cost/ Contribution margin per unit

185. What is pricing or price theory?
Pricing or price theory is that part of Economics which analysis the way in which prices are determined in a free market economy and the role they play in solving the problems of resource allocation.

186. What is perfect competition?
Perfect competition may be defined as a market situation in which there are large number of buyers and sellers in close contact dealing in indentical commodity without price discrimination.

187. What is product differentiation?
Product differentiation is the main feature of monopolistic competition. When there are many firms dealing in a particular product, and when the product of each firm is differentiated by means of brand names and trade marks, it is called product differentiation.

188. What is equilibrium price?
The price at which demand and supply are equal is known as the equilibrium price

189. What is meant by Reserve price?
Reserve price is the price below which a seller is not prepared to sell.

190. What is normal price?
Normal value (price) is that prevails in the long run. In this period, a very long time is available to adjust the supply to changes in demand.

191. What is Monopoly?
Monopoly exist when a firm or individual produces and sells the entire output of some commodity.

192. What is Oligopoly?
Oligopoly is a market in which there are few firms selling a particular products

193. What is the term Cost-Plus pricing?
The method of pricing is the simplest and common method of determining the selling prices of products.

194. What is skim pricing?
Price skimming is a method of pricing new products. When a new product is introduced in the market, it is priced at a relatively high level with the intention of skimming the cream from the market.

195. What is penetration price policy?
Penetration pricing refers to setting a low initial price on a product with a view to conquer the market.

196. What is rate of return pricing?
Rate of return pricing is simply a refind extension of the full cost pricing. According to this method the firm fixes a pre-determined target rate of return on capital invested. The price fixed will cover total cost and a target rate of return after tax.

197. What is differential pricing?
This is price control device under which product is sold at two different prices. In this two price system, a part of the output is sold at a fixed price and the remaining part of the output is sold freely in the market.

198. What is going rate pricing?
According to this method, the firm adjusts its own price policy to the general pricing structure in the industry. Going rate pricing in many cases results in “following the leader” without anyone knowing the identity of the price leader.

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