Micro

Production & Costs

Easy

Comprehension:

Read the passage carefully and answer the questions based on the passage:

Demand and Technology

Consider the case of a local coffee shop that faces rising demand for its products. In response to the increase in demand, the shop owner decided to increase the price of a cup of coffee. As a result, suppliers in the market respond by increasing their supply, hoping to capitalize on the higher price. If the coffee shop invests in a new espresso machine that makes coffee more efficiently, the cost of producing each cup decreases. This leads to an increase in supply and sell more coffee at the same or lower price, benefiting both the producers and consumers. This cost-reduction technology is helpful in the context of the real world.

What is the main purpose of Cost Reduction Technologies in business?

To increase demand for a product.

To maintain price level and to increase profit margins.

To maintain high price in the market.

To reduce number of suppliers in the market.

✅ Correct Option: 2

Option 1 -> Cost reduction technologies focus on lowering expenses, not directly on increasing product demand.

Option 2 -> Cost reduction technologies aim to lower production/operational costs, which allows businesses to either maintain current prices while increasing profit margins or reduce prices competitively.

Option 3 -> The purpose is to reduce costs, not to maintain artificially high market prices.

Option 4 -> Cost reduction technologies are internal efficiency measures, not tools for eliminating suppliers from the market.

Hence, Option 2: To maintain price level and to increase profit margins -> Cost Reduction Technologies are strategic tools that help businesses optimize their operations by minimizing production, operational, or service delivery costs. When a company successfully reduces its costs through technology implementation (such as automation, process optimization, or resource management systems), it has two strategic choices: either maintain the current market price and enjoy higher profit margins, or reduce prices to gain competitive advantage. The primary objective is profitability enhancement through cost efficiency, making this the core purpose of implementing such technologies in business operations. -> correct

Question 41

Which of the following is an example of Cost-Reduction Technology in a business?

Question 42

In Microeconomics, what does supply refer to?

Question 43

In the above paragraph, which factor is affecting the supply of Coffee?

Question 45

How does an increase in price affect supply?

What is the main purpose of Cost Reduction Technologies in business?

Solution

More from this set:

Keyboard Shortcuts

CUET Economics Past Year Questions (Topic-Wise)