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Test: Price Determination In Different Markets - 1

40 Questions MCQ Test Business Economics for CA Foundation | Test: Price Determination In Different Markets - 1

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This mock test of Test: Price Determination In Different Markets - 1 for CA Foundation helps you for every CA Foundation entrance exam. This contains 40 Multiple Choice Questions for CA Foundation Test: Price Determination In Different Markets - 1 (mcq) to study with solutions a complete question bank. The solved questions answers in this Test: Price Determination In Different Markets - 1 quiz give you a good mix of easy questions and tough questions. CA Foundation students definitely take this Test: Price Determination In Different Markets - 1 exercise for a better result in the exam. You can find other Test: Price Determination In Different Markets - 1 extra questions, long questions & short questions for CA Foundation on EduRev as well by searching above.

QUESTION: 1

In the table below what will be equilibrium market price?

A.
Rs. 2
B.
Rs. 3
C.
Rs. 4
D.
Rs. 5

Solution:

At the equilibrium level, market demand is equal to market supply. In the above schedule at the price level of Rs. 4, market demand = market supply = 700

QUESTION: 2

Assume that when price is Rs. 20, quantity demanded is 9 units, and when price is Rs. 19, quantity demanded is 10 units. Based on this information, what is the marginal revenue resulting from an increase in output from 9 units to 10 units.

A.
Rs. 20
B.
Rs. 19
C.
Rs. 10
D.
Re. 1

Solution:

QUESTION: 3

Assume that when price is Rs.20, quantity demanded is 15 units, and when price is Rs.18, quantity demanded is 16 units. Based on this information, what is the marginal revenue resulting from an increase in output from 15 units to 16 units?

A.
Rs. 18
B.
Rs. 16
C.
Rs. 12
D.
Rs. 28

Solution:

QUESTION: 4

Suppose a firm is producing a level of output such that MR > MC. What should be firm do to maximize its profits?

A.
The firm should do nothing.
B.
The firm should hire less labour.
C.
The firm should increase price.
D.
The firm should increase output.

Solution:

QUESTION: 5

Marginal Revenue is equal to :

A.
the change in price divided by the change in output.
B.
the change in quantity divided by the change in price.
C.
the change in P x Q due to a one unit change in output.
D.
price, but only if the firm is a price searcher.

Solution:

QUESTION: 6

Suppose that a sole proprietorship is earning total revenues of Rs. 1,00,000 and is incurring explicit costs of Rs. 75,000. If the owner could work for another company for Rs. 30,000 a year, we would conclude that :

A.
the firm is incurring an economic loss.
B.
implicit costs are Rs. 25,000.
C.
the total economic costs are Rs. 1,00,000.
D.
the individual is earning an economic profit of Rs. 25,000.

Solution:

QUESTION: 7

Which of the following is not an essential condition of pure competition?

A.
Large number of buyers and sellers
B.
Homogeneous product
C.
Freedom of entry
D.
Absence of transport cost

Solution:

QUESTION: 8

What is the shape of the demand curve faced by a firm under perfect competition?

A.
Horizontal
B.
Vertical
C.
Positively sloped
D.
Negatively sloped

Solution:

QUESTION: 9

Which is the first order condition for the profit of a firm to be maximum?

A.
AC = MR
B.
MC = MR
C.
MR = AR
D.
AC = AR

Solution:

QUESTION: 10

Which of the following is not a characteristic of a “price taker”?

A.
TR = P x Q
B.
AR = Price
C.
Negatively – sloped demand curve
D.
Marginal Revenue = Price

Solution:

QUESTION: 11

Which of the following statements is false?

A.
Economic costs include the opportunity costs of the resources owned by the firm.
B.
Accounting costs include only explicit costs.
C.
Economic profit will always be less than accounting profit if resources owned and used by the firm have any opportunity costs.
D.
Accounting profit is equal to total revenue less implicit costs.

Solution:

QUESTION: 12

With a given supply curve, a decrease in demand causes

A.
an overall decrease in price but an increase in equilibrium quantity.
B.
an overall increase in price but a decrease in equilibrium quantity.
C.
an overall decrease in price and a decrease in equilibrium quantity.
D.
no change in overall price but a reduction in equilibrium quantity.

Solution:

QUESTION: 13

It is assumed in economic theory that

A.
decision making within the firm is usually undertaken by managers, but never by the owners.
B.
the ultimate goal of the firm is to maximise profits, regardless of firm size or type of business organisation.
C.
as the firm’s size increases, so do its goals.
D.
the basic decision making unit of any firm is its owners.

Solution:

QUESTION: 14

Assume that consumers’ incomes and the number of sellers in the market for good A both decrease. Based upon this information we can conclude, with certainty, that equilibrium :

A.
price will increase.
B.
price will decrease.
C.
quantity will increase.
D.
quantity will decrease.

Solution:

QUESTION: 15

Suppose that the supply of cameras increases due to an increase in foreign imports. Which of the following will most likely occur?

A.
the equilibrium price of cameras will increase.
B.
the equilibrium quantity of cameras exchanged will decrease.
C.
the equilibrium price of camera film will decrease.
D.
the equilibrium quantity of camera film exchanged will increase.

Solution:

QUESTION: 16

Assume that in the market for good Z there is a simultaneous increase in demand and the quantity supplied. The result will be :

A.
an increase in equilibrium price and quantity.
B.
a decrease in equilibrium price and quantity.
C.
an increase in equilibrium quantity and uncertain effect on equilibrium price.
D.
a decrease in equilibrium price and increase in equilibrium quantity.

Solution:

QUESTION: 17

Suppose the technology for producing personal computers improves and, at the same time, individuals discover new uses for personal computers so that there is greater utilisation of personal computers. Which of the following will happen to equilibrium price and equilibrium quantity?

A.
Price will increase; quantity cannot be determined.
B.
Price will decrease; quantity cannot be determined.
C.
Quantity will increase; price cannot be determined.
D.
Quantity will decrease; price cannot be determined.

Solution:

QUESTION: 18

Which of the following is not a condition of perfect competition?

A.
A large number of firms.
B.
Perfect mobility of factors.
C.
Informative advertising to ensure that consumers have good information.
D.
Freedom of entry and exit into and out of the market.

Solution:

QUESTION: 19

Which of the following is not a characteristic of a perfectly competitive market?

A.
Large number of firms in the industry.
B.
Outputs of the firms are perfect substitutes for one another.
C.
Firms face downward-sloping demand curves.
D.
Resources are very mobile.

Solution:

QUESTION: 20

Which of the following is not a characteristic of monopolistic competition?

A.
Ease of entry into the industry.
B.
Product differentiation.
C.
A relatively large number of sellers.
D.
A homogenous product.

Solution:

QUESTION: 21

All of the following are characteristics of a monopoly except :

A.
there is a single firm.
B.
the firm is a price taker.
C.
the firm produces a unique product.
D.
the existence of some advertising.

Solution:

QUESTION: 22

Oligopolistic industries are characterized by :

A.
a few dominant firms and substantial barriers to entry.
B.
a few large firms and no entry barriers.
C.
a large number of small firms and no entry barriers.
D.
one dominant firm and low entry barriers.

Solution:

QUESTION: 23

Price-taking firms, i.e., firms that operate in a perfectly competitive market, are said to be “small” relative to the market. Which of the following best describes this smallness?

A.
The individual firm must have fewer than 10 employees.
B.
The individual firm faces a downward-sloping demand curve.
C.
The individual firm has assets of less than Rs. 20 lakh.
D.
The individual firm is unable to affect market price through its output decisions.

Solution:

QUESTION: 24

For the price-taking firm :

A.
marginal revenue is less than price.
B.
marginal revenue is equal to price.
C.
marginal revenue is greater than price.
D.
the relationship between marginal revenue and price is indeterminate.

Solution:

QUESTION: 25

Monopolistic competition differs from perfect competition primarily because

A.
in monopolistic competition, firms can differentiate their products.
B.
in perfect competition, firms can differentiate their products.
C.
in monopolistic competition, entry into the industry is blocked.
D.
in monopolistic competition, there are relatively few barriers to entry.

Solution:

QUESTION: 26

The long-run equilibrium outcomes in monopolistic competition and perfect competition are similar, because in both market structures

A.
the efficient output level will be produced in the long run.
B.
firms will be producing at minimum average cost.
C.
firms will only earn a normal profit.
D.
firms realise all economies of scale.

Solution:

QUESTION: 27

A monopolist is able to maximise his profits when :

A.
his output is maximum.
B.
he charges a high price.
C.
his average cost is minimum.
D.
his marginal cost is equal to marginal revenue.

Solution:

QUESTION: 28

In which form of the market structure is the degree of control over the price of its product by a firm very large?

A.
Monopoly
B.
Imperfect Competition
C.
Oligopoly
D.
Perfect competition

Solution:

QUESTION: 29

Which is the other name that is given to the average revenue curve?

A.
Profit Curve
B.
Demand Curve
C.
Average Cost Curve
D.
Indifference Curve

Solution:

QUESTION: 30

Under which of the following forms of market structure does a firm have no control over the price of its product?

A.
Monopoly
B.
Monopolistic competition
C.
Oligopoly
D.
Perfect competition

Solution:

QUESTION: 31

Discriminating monopoly implies that the monopolist charges different prices for his commodity :

A.
from different groups of consumers
B.
for different uses
C.
at different places
D.
any of the above

Solution:

QUESTION: 32

Price discrimination will be profitable only if the elasticity of demand in different market in which the total market has been divided is :

A.
uniform
B.
different
C.
less
D.
zero

Solution:

QUESTION: 33

The Kinked demand hypothesis is designed to explain in the context of oligopoly

A.
Price and output determination
B.
Price rigidity
C.
Price leadership
D.
Collusion among rivals

Solution:

QUESTION: 34

The firm in a perfectly competitive market is a price taker. This designation as a price taker is based on the assumption that

A.
the firm has some, but not complete, control over its product price.
B.
there are so many buyers and sellers in the market that any individual firm cannot affect the market.
C.
each firm produces a homogeneous product.
D.
there is easy entry into or exit from the market place.

Solution:

QUESTION: 35

Suppose that the demand curve for the XYZ Co. slopes downward and to the right. We can conclude that

A.
the firm operates in a perfectly competitive market.
B.
the firm can sell all that it wants to at the established market price.
C.
the XYZ Co. is not a price taker in the market because it must lower price to sell additional units of output.
D.
the XYZ Co. will not be able to maximise profits because price and revenue are subject to change.

Solution:

QUESTION: 36

If firms in the toothpaste industry have the following market shares, which market structure would best describe the industry?

A.
Perfect competition
B.
Monopolistic competition
C.
Oligopoly
D.
Monopoly

Solution:

QUESTION: 37

The kinked demand curve model of oligopoly assumes that

A.
response to a price increase is less than the response to a price decrease.
B.
response to a price increase is more than the response to a price decrease.
C.
elasticity of demand is constant regardless of whether price increases or decreases.
D.
elasticity of demand is perfectly elastic if price increases and perfectly inelastic if price decreases.

Solution:

The kinked demand curve model of oligopoly assumes that response to a price increase is less than the response to a price decrease. In an oligopolistic market, the kinked demand curve hypothesis states that the firm faces a demand curve with a kink at the prevailing price level. The curve is more elastic above the kink and less elastic below it. This means that the response to a price increase is less than the response to a price decrease.

QUESTION: 38

A firm encounters its “shutdown point” when :

A.
average total cost equals price at the profit-maximising level of output.
B.
average variable cost equals price at the profit-maximising level of output.
C.
average fixed cost equals price at the profit-maximising level of output.
D.
marginal cost equals price at the profit-maximising level of output.

Solution:

QUESTION: 39

Suppose that, at the profit-maximizing level of output, a firm finds that market price is less than average total cost, but greater than average variable cost. Which of the following statements is correct?

A.
The firm should shutdown in order to minimise its losses.
B.
The firm should raise its price enough to cover its losses.
C.
The firm should move its resources to another industry.
D.
The firm should continue to operate in the short run in order to minimize its losses.

Solution:

QUESTION: 40

When price is less than average variable cost at the profit-maximising level of output, a firm should :

A.
produce where marginal revenue equals marginal cost if it is operating in the short run.
B.
produce where marginal revenue equals marginal cost if it is operating is the long run.
C.
shutdown, since it will lose nothing in that case.
D.
shutdown, since it cannot even cover its variable costs if it stays in business.

Solution:

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Test: Price Determination In Different Markets - 1

40 Questions MCQ Test Business Economics for CA Foundation | Test: Price Determination In Different Markets - 1

In the table below what will be equilibrium market price?

Assume that when price is Rs. 20, quantity demanded is 9 units, and when price is Rs. 19, quantity demanded is 10 units. Based on this information, what is the marginal revenue resulting from an increase in output from 9 units to 10 units.

Assume that when price is Rs.20, quantity demanded is 15 units, and when price is Rs.18, quantity demanded is 16 units. Based on this information, what is the marginal revenue resulting from an increase in output from 15 units to 16 units?

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