Test: The Theory of the Firm under Perfect Competition- Match Based Type Questions - Commerce MCQ

A. Product differentiation: In a perfectly competitive market products are perfect substitutes for each other. But in monopolistically competitive markets the products are highly differentiated. In fact, firms work hard to emphasize the non-price related differences between their products and their competitors'.

B. Firms sell homogeneous products: 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.

C. Optimal allocation of resources in the long run: In the long run in a perfectly competitive market—because of the process of entry and exit the price in the market is equal to the minimum of the long-run average cost curve. ... In other words, goods are being produced and sold at the lowest possible average cost.

D. Firms are price makers: Price takers are found in perfectly competitive markets. Price makers are able to influence the market price and enjoy pricing power. Price makers are found in imperfectly competitive markets such as a monopoly. In a perfectly competitive market, which comprises or oligopoly market.

A. Price taker firm: A perfectly competitive firm is known as a price taker because the pressure of competing firms forces them to accept the prevailing equilibrium price in the market. If a firm in a perfectly competitive market raises the price of its product by so much as a penny, it will lose all of its sales to competitors.

B. Homogeneous Product: A homogeneous product is one that cannot be distinguished from competing products from different suppliers. In other words, the product has essentially the same physical characteristics and quality as similar products from other suppliers. One product can easily be substituted for the other.

C. Price Maker: A price maker is an entity, such as a firm, with a monopoly that gives it the power to influence the price it charges as the good it produces does not have perfect substitutes. A price maker within monopolistic competition produces goods that are differentiated in some way from its competitors' products.

D. Heterogeneous Product: Heterogeneous products are products with attributes that are significantly different from each other, which makes it difficult to substitute one product for another.

A. Price Floor: Price floor is a situation when the price charged is more than or less than the equilibrium price determined by market forces of demand and supply. By observation, it has been found that lower price floors are ineffective. Price floor leads to a lesser number of workers than in case of equilibrium wage.

B. Price Ceiling: A price ceiling is the mandated maximum amount a seller is allowed to charge for a product or service. Usually set by law, price ceilings are typically applied to staples such as food and energy products when such goods become unaffordable to regular consumers.

C. Price Floor: Price floor is a situation when the price charged is more than or less than the equilibrium price determined by market forces of demand and supply. By observation, it has been found that lower price floors are ineffective. Price floor leads to a lesser number of workers than in case of equilibrium wage.

D. Price Ceiling: A price ceiling is the mandated maximum amount a seller is allowed to charge for a product or service. Usually set by law, price ceilings are typically applied to staples such as food and energy products when such goods become unaffordable to regular consumers.

A. Effect on supply, in case of perfectly Elastic Demand: If supply is perfectly elastic, it means that any change in price will result in an infinite amount of change in quantity.

B. Effect on demand, in case of Perfectly Inelastic Supply: When demand is perfectly inelastic, quantity demanded for a good does not change in response to a change in price. Finally, demand is said to be perfectly elastic when the PED coefficient is equal to infinity. When demand is perfectly elastic, buyers will only buy at one price and no other.

C. Effect on demand, in case of Perfectly Elastic Supply: The PES for perfectly elastic supply is infinite, where the quantity supplied is unlimited at a given price, but no quantity can be supplied at any other price.

D. Effect on supply, in case of Perfectly Elastic Demand: If supply is perfectly elastic, it means that any change in price will result in an infinite amount of change in quantity.

A. Features of Monopoly Market: A monopoly market is characterized by the profit maximizer, price maker, high barriers to entry, single seller, and price discrimination. Monopoly characteristics include profit maximizer, price maker, high barriers to entry, single seller, and price discrimination.

B. Advantages of Monopoly Market: The advantage of monopolies is the assurance of a consistent supply of a commodity that is too expensive to provide in a competitive market.

C. Limitation of Monopoly Market: A monopoly market is characterized by the profit maximizer, price maker, high barriers to entry, single seller, and price discrimination. Monopoly characteristics include profit maximizer, price maker, high barriers to entry, single seller, and price discrimination.

D. Feature of Perfect Competition: A perfectly competitive market is characterized by many buyers and sellers, undifferentiated products, no transaction costs, no barriers to entry and exit, and perfect information about the price of a good. The total revenue for a firm in a perfectly competitive market is the product of price and quantity (TR = P * Q).

• Monopoly Market: 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.

• Perfect Competition Market: Perfect competition is an ideal type of market structure where all producers and consumers have full and symmetric information, no transaction costs, where there are a large number of producers and consumers competing with one another. Perfect competition is theoretically the opposite of a monopolistic market.

• Monopoly Market: A monopoly is a firm who is the sole seller of its product, and where there are no close substitutes. An unregulated monopoly has market power and can influence prices. Examples: Microsoft and Windows, DeBeers and diamonds, your local natural gas company.

• Perfect Competition Market: Perfect competition is an ideal type of market structure where all producers and consumers have full and symmetric information, no transaction costs, where there are a large number of producers and consumers competing with one another. Perfect competition is theoretically the opposite of a monopolistic market. Examples of this perfect market structure are: A large number of buyers. A large number of sellers. Every participant is a price taker, not having the ability to influence market prices.

A. Demand Curve of Perfect Competition: The market demand curve is downward-sloping. The market demand curve slopes downward, while the perfectly competitive firm's demand curve is a horizontal line equal to the equilibrium price of the entire market. The horizontal demand curve indicates that the elasticity of demand for the good is perfectly elastic.

B. Demand Curve of Monopoly: Monopolies have downward sloping demand curves and downward sloping marginal revenue curves that have the same y-intercept as demand but which are twice as steep. The shape of the curves shows that marginal revenue will always be below demand.

C. Demand Curve of Monopolistic Competition: The demand curve for an individual firm is downward sloping in monopolistic competition, in contrast to perfect competition where the firm's individual demand curve is perfectly elastic. This is due to the fact that firms have market power: they can raise prices without losing all of their customers.

D. Demand Curve of Oligopoly: 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.

A. Feature of Oligopoly: The distinctive feature of an oligopoly is interdependence. Oligopolies are typically composed of a few large firms. Each firm is so large that its actions affect market conditions. Therefore, the competing firms will be aware of a firm's market actions and will respond appropriately.

B. Feature of monopoly: A monopoly market is characterized by the profit maximizer, price maker, high barriers to entry, single seller, and price discrimination. Monopoly characteristics include profit maximizer, price maker, high barriers to entry, single seller, and price discrimination.

C. Feature of monopolistic competition: Monopolistic competitive markets have highly differentiated products; have many firms providing the good or service; firms can freely enter and exits in the long-run; firms can make decisions independently; there is some degree of market power; and buyers and sellers have imperfect information.

D. Feature of perfect competition: A perfectly competitive market is characterized by many buyers and sellers, undifferentiated products, no transaction costs, no barriers to entry and exit, and perfect information about the price of a good. The total revenue for a firm in a perfectly competitive market is the product of price and quantity (TR = P * Q).

• Monopoly: A monopoly is a firm who is the sole seller of its product, and where there are no close substitutes. An unregulated monopoly has market power and can influence prices. Examples: Microsoft and Windows, DeBeers and diamonds, your local natural gas company.

• Perfect Competition: Perfect competition is an ideal type of market structure where all producers and consumers have full and symmetric information, no transaction costs, where there are a large number of producers and consumers competing with one another. Perfect competition is theoretically the opposite of a monopolistic market. Examples of this perfect market structure are: A large number of buyers. A large number of sellers. Every participant is a price taker, not having the ability to influence market prices.

• Monopolistic competition: Monopolistic competitive markets have highly differentiated products; have many firms providing the good or service; firms can freely enter and exits in the long-run; firms can make decisions independently; there is some degree of market power; and buyers and sellers have imperfect information.

• Feature of Perfect Competition: A perfectly competitive market is characterized by many buyers and sellers, undifferentiated products, no transaction costs, no barriers to entry and exit, and perfect information about the price of a good. The total revenue for a firm in a perfectly competitive market is the product of price and quantity (TR = P * Q).

• Feature of Monopoly Market: A monopoly market is characterized by the profit maximizer, price maker, high barriers to entry, single seller, and price discrimination. Monopoly characteristics include profit maximizer, price maker, high barriers to entry, single seller, and price discrimination.

• Feature of Monopolistic Competition: Monopolistic competitive markets have highly differentiated products; have many firms providing the good or service; firms can freely enter and exits in the long-run; firms can make decisions independently; there is some degree of market power; and buyers and sellers have imperfect information.

• Monopoly: A monopoly is a firm who is the sole seller of its product, and where there are no close substitutes. An unregulated monopoly has market power and can influence prices. Examples: Microsoft and Windows, DeBeers and diamonds, your local natural gas company.

• Perfect Competition: Perfect competition is an ideal type of market structure where all producers and consumers have full and symmetric information, no transaction costs, where there are a large number of producers and consumers competing with one another. Perfect competition is theoretically the opposite of a monopolistic market. Examples of this perfect market structure are: A large number of buyers. A large number of sellers. Every participant is a price taker, not having the ability to influence market prices.

• Monopolistic competition: Monopolistic competitive markets have highly differentiated products; have many firms providing the good or service; firms can freely enter and exits in the long-run; firms can make decisions independently; there is some degree of market power; and buyers and sellers have imperfect information.