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Test: Theory Of The Firm Under Perfect Competition - 1


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Test: Theory Of The Firm Under Perfect Competition - 1 - Question 1

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

Detailed Solution for Test: Theory Of The Firm Under Perfect Competition - 1 - Question 1

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.
Test: Theory Of The Firm Under Perfect Competition - 1 - Question 2

Globalization has made Indian Market as?

Detailed Solution for Test: Theory Of The Firm Under Perfect Competition - 1 - Question 2

Globalization has had a significant and nearly instantaneous impact on India as a whole. The reduction of export subsidies and import barriers enabled free trade that made the untapped Indian market incredibly attractive to the international community.

Test: Theory Of The Firm Under Perfect Competition - 1 - Question 3

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

Detailed Solution for Test: Theory Of The Firm Under Perfect Competition - 1 - Question 3

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.

Test: Theory Of The Firm Under Perfect Competition - 1 - Question 4

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

Detailed Solution for Test: Theory Of The Firm Under Perfect Competition - 1 - Question 4

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.

Test: Theory Of The Firm Under Perfect Competition - 1 - Question 5

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

Detailed Solution for Test: Theory Of The Firm Under Perfect Competition - 1 - Question 5

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.

Test: Theory Of The Firm Under Perfect Competition - 1 - Question 6

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

Detailed Solution for Test: Theory Of The Firm Under Perfect Competition - 1 - Question 6

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.
Test: Theory Of The Firm Under Perfect Competition - 1 - Question 7

Marginal revenue in any competitive situation is?

Detailed Solution for Test: Theory Of The Firm Under Perfect Competition - 1 - Question 7

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.

Test: Theory Of The Firm Under Perfect Competition - 1 - Question 8

A rational consumer is a person who?

Detailed Solution for Test: Theory Of The Firm Under Perfect Competition - 1 - Question 8

A rational consumer is considered to be that person who makes rational consumption decisions.

In other words, the consumer who makes his choices after considering all the other alternative goods (and services) available in the market is called a rational consumer.

Test: Theory Of The Firm Under Perfect Competition - 1 - Question 9

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

Detailed Solution for Test: Theory Of The Firm Under Perfect Competition - 1 - Question 9

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 labor are perfectly mobile.
6. Firms can enter or exit the market without cost.

Test: Theory Of The Firm Under Perfect Competition - 1 - Question 10

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

Detailed Solution for Test: Theory Of The Firm Under Perfect Competition - 1 - Question 10

Producer’s equilibrium refers to the state in which a producer earns his maximum profit or minimizes its losses.

According to the MR-MC approach, the producer is at equilibrium when the Marginal Revenue (MR) is equal to the Marginal Cost (MC), and the Marginal Cost curve must cut the Marginal Revenue curve from below.

Two conditions under this approach are:

(i) MR = MC

(ii) MC curve should cut the MR curve from below, or MC should be rising.

Test: Theory Of The Firm Under Perfect Competition - 1 - Question 11

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

Detailed Solution for Test: Theory Of The Firm Under Perfect Competition - 1 - Question 11

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.

Test: Theory Of The Firm Under Perfect Competition - 1 - Question 12

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

Detailed Solution for Test: Theory Of The Firm Under Perfect Competition - 1 - Question 12

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

Test: Theory Of The Firm Under Perfect Competition - 1 - Question 13

A producer’s equilibrium is a situation when

Detailed Solution for Test: Theory Of The Firm Under Perfect Competition - 1 - Question 13

Producer's equilibrium refers to a situation where profits are maximised, i.e., the difference between total revenue and total cost is maximised, or in cases of losses, the difference is minimised, so as to minimise losses.

Test: Theory Of The Firm Under Perfect Competition - 1 - Question 14

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

Detailed Solution for Test: Theory Of The Firm Under Perfect Competition - 1 - Question 14

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.

Test: Theory Of The Firm Under Perfect Competition - 1 - Question 15

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

Detailed Solution for Test: Theory Of The Firm Under Perfect Competition - 1 - Question 15

If supply is unit elastic, then each percentage increase in price results in exactly a 1 percent increase in the quantity supplied. This change is only possible when the slope equals 1 (which occurs with a 45-degree line) and starts at the origin.

Test: Theory Of The Firm Under Perfect Competition - 1 - Question 16

Under perfect competition the number of firms

Detailed Solution for Test: Theory Of The Firm Under Perfect Competition - 1 - Question 16

Perfect competition is a type of market where there are many buyers and sellers, and all of them initiate the buying and selling mechanism. There are no restrictions and no direct competition in the market. It is assumed that all the sellers are selling identical or homogenous products.

Test: Theory Of The Firm Under Perfect Competition - 1 - Question 17

When ___________, the firms are earning just normal profit:

Detailed Solution for Test: Theory Of The Firm Under Perfect Competition - 1 - Question 17

AC = 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.

Test: Theory Of The Firm Under Perfect Competition - 1 - Question 18

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

Detailed Solution for Test: Theory Of The Firm Under Perfect Competition - 1 - Question 18

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 the 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.

Test: Theory Of The Firm Under Perfect Competition - 1 - Question 19

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

Detailed Solution for Test: Theory Of The Firm Under Perfect Competition - 1 - Question 19

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 identical selling 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.

Test: Theory Of The Firm Under Perfect Competition - 1 - Question 20

Other name by which average revenue curve known:

Detailed Solution for Test: Theory Of The Firm Under Perfect Competition - 1 - Question 20

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.

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