Test: Theory Of The Firm Under Perfect Competition - 1


20 Questions MCQ Test Economics Class 11 | Test: Theory Of The Firm Under Perfect Competition - 1


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QUESTION: 1

A firm can sell as much as it wants at the market price. The situation is related to?

Solution:

Pure or perfect competition is a theoretical market structure in which the following criteria are met: All firms sell an identical product (the product is a "commodity" or "homogeneous"). All firms are price takers (they cannot influence the market price of their product). Market share has no influence on prices.

QUESTION: 2

Globalization has made Indian Market as?

Solution:

Globalisation is the rapid integration or interconnection between countries mostly on the economic plane. In other words Globalisation means integrating our economy with the world economy.Movement of people between countries increases due to globalisation. 

QUESTION: 3

When AR = Rs. 10 and AC = Rs. 8, the firm makes?

Solution:

Supernormal profit is defined as extra profit above that level of normal profit.
Here the firm earns profit of Rs. 2 over the cost occurred.

QUESTION: 4

A competitive firm in the short run incurs losses. The firm continues production, if?

Solution:

With loss minimization, price exceeds average variable cost but is less than average total cost at the quantity that equates marginal revenue and marginal cost. In this case, the firm incurs a smaller loss by producing some output than by not producing any output.

QUESTION: 5

In the long run the market price of a commodity is equal to its minimum average cost of production under the___________?

Solution:

Perfect competition is an industry structure in which there are many firms producing homogeneous products. None of the firms are large enough to influence the industry. In the long-run, companies that are engaged in a perfectly competitive market earn zero economic profits. The long-run equilibrium point for a perfectly competitive market occurs where the demand curve (price) intersects the marginal cost (MC) curve and the minimum point of the average cost (AC) curve. Since they are the price takers and the price remains constant so  does the AC of production.

QUESTION: 6

While a seller under perfect competition equates price and MC to maximize profits a monopolist should equate?

Solution:

In a monopolistic market, there is only one firm that produces a product. There is absolute product differentiation because there is no substitute. The marginal cost of production is the change in the total cost that arises when there is a change in the quantity produced. The marginal revenue is the change in the total revenue that arises when there is a change in the quantity produced. a firm maximizes its total profit by equating marginal cost to marginal revenue and solving for the price of one product and the quantity it must produce.

QUESTION: 7

Marginal revenue in any competitive situation is?

Solution:

Marginal revenue (MR) can be defined as additional revenue gained from the additional unit of output. Marginal revenue is the change in total revenue which results from the sale of one more or one less unit of output.
Formula:
Total revenue = TR
Total Unit = n
Total Unit less one unit = n-1
MR = TRn-TRn-1.

QUESTION: 8

A rational consumer is a person who?

Solution:
QUESTION: 9

In which of the following types of market structures, are resources, assumed to be mobile?

Solution:

Pure or perfect competition is a theoretical market structure in which the following criteria are met:
1. All firms sell an identical product (the product is a "commodity" or "homogeneous").
2. All firms are price takers (they cannot influence the market price of their product).
3. Market share has no influence on prices.
4. Buyers have complete or "perfect" information—in the past, present and future—about the product being sold and the prices charged by each firm.
5. Resources for such a labor are perfectly mobile.
6. Firms can enter or exit the market without cost.

QUESTION: 10

At producer’s equilibrium when MR=MC, the firm earns only

Solution:
QUESTION: 11

Beyond producer’s equilibrium when MR<MC, the firm earns only

Solution:

Marginal Cost < Marginal Revenue means abnormal loss situation, where the total revenue of a business does not cover total cost incurred for the business, due to which the profits of the business are below normal limits.

QUESTION: 12

Before producer’s equilibrium when MR > MC, the firm earns only

Solution:

If a firm makes more than normal profit it is called super-normal profit. Supernormal profit is also called economic profit, and abnormal profit, and is earned when total revenue is greater than the total costs. 
Total profits = total revenue (TR) – total costs (TC)
Abnormal Profit = MR > MC

QUESTION: 13

A producer’s equilibrium is a situation when

Solution:
QUESTION: 14

The elasticity at a point on a straight line supply curve passing through the origin will be

Solution:

Regardless of the gradient of the linear supply curve or its position on the supply curve, the PES of a linear supply curve that passes through the origin is always equal to 1. Therefore, if the supply curve originates with P = 0 and Q = 0, the elasticity will always be 1.
 Formula-
%Change in quantity
%change in price.

QUESTION: 15

The elasticity at a point on a straight line supply curve passing through the origin making an angle of 45°will be

Solution:
QUESTION: 16

Under perfect competition the number of firms

Solution:
QUESTION: 17

When ___________, the firms are earning just normal profit:

Solution:

0AC = AR means the firm’s cost and revenue are equal which means the firm does not earn any profit or no loss, which means the firm is earning normal profit.

QUESTION: 18

Which of the following is the condition for equilibrium of a firm?

Solution:

A firm is in equilibrium when it is satisfied with its existing level of output. The firm wills, in this situation produce the level of output which brings in greatest profit or smallest loss. When this situation is reached, the firm is said to be in equilibrium.
Marginal cost should be equal to marginal revenue, then only the firm can be called at equilibrium.

QUESTION: 19

In perfect competition, since the firm is a price taker, the ________ curve is straight line

Solution:

Marginal revenue is the extra revenue generated when a perfectly competitive firm sells one more unit of output. The marginal revenue received by a firm is the change in total revenue divided by the change in quantity. Perfect competition is a market structure with a large number of small firms, each selling identical goods. Perfectly competitive firms have perfect knowledge and perfect mobility into and out of the market. These conditions mean perfectly competitive firms are price takers, they have no market control and receive the going market price for all output sold. Since they are the price takers and have no control over price but just the production, so even if they increase their quantity of production, still the price will remain constant and so does the marginal revenue.

QUESTION: 20

Other name by which average revenue curve known:

Solution:

Average revenue curve is often called the demand curve due to its representation of the product's demand in the market. Each point on the curve represents the price of the product in the market. Price determines the demand for a product, hence Average revenue curve is also demand curve.
Assuming it is a perfect competitive market.