Test: The Theory of the Firm under Perfect Competition- Assertion & Reason Type Questions


15 Questions MCQ Test Economics Class 11 | Test: The Theory of the Firm under Perfect Competition- Assertion & Reason Type Questions


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Attempt Test: The Theory of the Firm under Perfect Competition- Assertion & Reason Type Questions | 15 questions in 30 minutes | Mock test for Commerce preparation | Free important questions MCQ to study Economics Class 11 for Commerce Exam | Download free PDF with solutions
QUESTION: 1

Direction: In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): There is no restriction on the entry and exit of the firms in the perfect competitive market.

Reason (R): The perfect competition market is characterised by the sellers being a price taker and not a price maker.

Solution: Firms are said to be in perfect competition when the following conditions occur: Many firms produce identical products. Firms can enter and leave the market without any restrictions. In other words, there is free entry and exit into and out of the market.
QUESTION: 2

Direction: In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): The vegetable market is a perfect example of perfect competition market.

Reason (R): The marketers have no control over the prices of the product.

Solution: Perfect competition occurs when all companies sell identical products, market share does not influence price, companies are able to enter or exit without barrier, buyers have “perfect” or full information, and companies cannot determine prices. For example consider a farmers market where each vendor sells the same type of jam. There is little differentiation between each of their products, as they use the same recipe, and they each sell them at an equal price. At the same time, sellers are few and free to participate in the market without any barrier. Buyers, in this case, would be fully knowledgeable of the product's recipe, and any other information relevant to the good.
QUESTION: 3

Direction: In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): The industries today are moving towards being perfect competitive market.

Reason (R): In perfect competitive market, the firms sell homogeneous products.

Solution: Perfect competition is a type of market structure where products are homogeneous and there are many buyers and sellers. It is held as the ideal market structure for economies to operate in.
QUESTION: 4

Direction: In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): Government imposes price floor to protect the interest of the producers.

Reason (R): Price floor makes the goods beneficial for the sellers to sell in the market.

Solution: The government imposes lower limit on the price that may be charged for a particular good or service is called price floor. When equilibrium price determined by market forces of demand and supply is considered to be unremunerative for the producer, the government intervenes to protect the interest of producers.
QUESTION: 5

Direction: In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): Government imposes price ceiling to protect the consumers.

Reason (R): Price ceiling is imposed on essential commodities.

Solution: A price ceiling is a limit on the price of a good or service imposed by the government to protect consumers. Consumer behavior reveals how to appeal to people with different habits by ensuring that prices do not become prohibitively expensive.
QUESTION: 6

Direction: In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): Increase or decrease in demand causes a change in the price of the commodity. Equilibrium quantity remains constant.

Reason (R): When demand increases more than supply, equilibrium price will increase.

Solution:

An increase in demand while the supply remains unchanged causes equilibrium price and quantity to increase. Due to increase in demand the quantity demanded will increase this will thereby increase competition in the market which will leaf to increase in price of the product. hence, when the price increases demand decreases to reach to equilibrium and new equilibrium quantity and price will be derived.

QUESTION: 7

Direction: In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): Reliance has a monopoly in the sector of telecommunication with its Jio in India.

Reason (R): Monopoly is characterised when there is only one seller in the market and the firm is a price maker.

Solution: A market structure characterized by a single seller, selling a unique product in the market. In a monopoly market, the seller faces no competition, as he is the sole seller of goods with no close substitute. He enjoys the power of setting the price for his goods.
QUESTION: 8

Direction: In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): Indian Railways is a monopoly sector of the Indian Economy.

Reason (R): There is only one seller of Railways in India that is the Government of India.

Solution: The supplier of rail transportation in India is the Indian Railways (IR), a vertically integrated monopoly service provider owned by the government. Run as a departmental undertaking, it is one of world's largest railways with over 63,000 route-km and just under 1.5 million employees (Government of India 2006a).
QUESTION: 9

Direction: In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): By disinvesting in the public sector, there is a fear of monopoly of the economy and there will be only one player Reliance in the market.

Reason (R): Monopoly is the market in which there is a lot of government restriction to ensure that there is minimum exploitation of consumers.

Solution: Barriers to entry prevent or discourage competitors from entering the market. A natural monopoly arises when economies of scale persist over a large enough range of output that if one firm supplies the entire market, no other firm can enter without facing a cost disadvantage.
QUESTION: 10

Direction: In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): Oil Producing Companies have an oligopoly market.

Reason (R): There are only few countries that produce and export crude oil in the whole world.

Solution: Throughout history, there have been oligopolies in many different industries, including steel manufacturing, oil, railroads, tire manufacturing, grocery store chains, and wireless carriers. Other industries with an oligopoly structure are airlines and pharmaceuticals.
QUESTION: 11

Direction: In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): Oligopoly market has few sellers influencing the market.

Reason (R): Oligopoly market is characterised by the presence of few sellers and many buyers.

Solution: Oligopoly means few sellers. In an oligopolistic market, each seller supplies a large portion of all the products sold in the marketplace. As large firms supplying a sizable portion of a market, these companies have some control over the prices they charge.
QUESTION: 12

Direction: In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): In oligopoly market, the firms restrict the entry of new firms.

Reason (R): Oligopoly market has few sellers which influence the decisions of the market and restrict the entry of new firms.

Solution: One important source of oligopoly power is barriers to entry. Barriers to entry are obstacles that make it difficult to enter a given market. This means that new firms cannot enter the market whenever existing firms are making a positive economic profit, as is the case in perfect competition.
QUESTION: 13

Direction: In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): The deodorant industry is a monopolistic competitive market.

Reason (R): There are a lot of varieties of deodorants present in the market.

Solution: Soap, shampoo, deodorants, shaving cream, cold remedies, and many other items found in a drugstore are sold in monopolistic ally competitive markets. The markets for bicycles and other sporting goods are likewise monopolistic and all competitive.
QUESTION: 14

Direction: In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): In monopolistic competition, there is a fierce competition between the firms in the market.

Reason (R): In monopolistic competition, there are a large number of sellers and buyers in the market.

Solution: Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another as goods but not perfect substitutes (such as from branding, quality, or location).
QUESTION: 15

Direction: In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): Monopolistic competition market has free entry and exit of the firms.

Reason (R): There is a presence of non-price competition in the market.

Solution: Monopolistically competitive markets exhibit the following characteristics: There is freedom to enter or leave the market, as there are no major barriers to entry or exit. A central feature of monopolistic competition is that products are differentiated.
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