Commerce Exam > Commerce Notes > Economics Class 11 > Worksheet: The Theory of the Firm under Perfect Competition- 1
Worksheet: The Theory of the Firm under Perfect Competition- 1 | Economics Class 11 - Commerce PDF Download
| Table of contents |
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| Multiple Choice Questions |
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| Match the Following |
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| True or False |
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| Very Short Answers |
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| Short Answers |
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| Long Answers |
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Multiple Choice Questions
Q1: Which market structure is characterized by numerous buyers and sellers, homogeneous products, and perfect information?
(a) Perfect Competition
(b) Monopoly
(c) Oligopoly
(d) Monopolistic Competition
Q2: What is the primary goal of a firm operating under perfect competition?
(a) Maximize Profit
(b) Increase Market Share
(c) Minimize Costs
(d) Set the Highest Price Possible
Q3: In perfect competition, which of the following is true regarding the demand curve faced by a firm?
(a) Perfectly Elastic
(b) Downward Sloping
(c) Upward Sloping
(d) Horizontal at Market Price
Q4: What happens to the price and output level of a firm in the short run if it incurs losses?
(a) Price Decreases, Output Decreases
(b) Price Increases, Output Decreases
(c) Price Increases, Output Increases
(d) Price Decreases, Output Increases
Q5: Which of the following statements is true about a firm in perfect competition in the long run?
(a) Firms can earn economic profit in the long run.
(b) Firms can only cover their explicit costs in the long run.
(c) Firms can earn normal profit in the long run.
(d) Firms can only survive if they make supernormal profit.
Match the Following
Q: Match the following terms with their correct definitions:
True or False
Q1: Perfectly competitive firms can freely enter or exit the market.
Q2: In perfect competition, each firm has some degree of market power.
Q3: Perfectly elastic demand curve implies that the firm can sell any quantity of output at the market price.
Q4: Firms in perfect competition can engage in non-price competition to increase sales.
Q5: Normal profit is the minimum level of profit necessary to keep a firm in operation.
Very Short Answers
Q1: Explain the concept of perfect competition in one sentence.
Q2: Define Marginal Revenue (MR).
Q3: Why is the demand curve facing a perfectly competitive firm perfectly elastic?
Q4: What is the significance of the price being equal to marginal cost for a firm in perfect competition?
Q5: State one condition necessary for a firm to achieve profit maximization in perfect competition.
Short Answers
Q1: Profit Maximization in Perfect Competition
Q2: Role of Perfect Competition in Promoting Consumer Welfare
Q3: Short-Run and Long-Run Equilibrium of a Firm in Perfect Competition
Q4: Importance of Price Elasticity of Demand for Perfectly Competitive Firms
Q5: Challenges Faced by Firms in Perfect Competition
Long Answers
Q1: Market Entry and Exit in Perfect Competition
Q2: Efficiency of Perfectly Competitive Markets
Q3: Price Determination in Perfect Competition
Q4: Benefits of Perfect Competition for Consumers and Society
Q5: Importance of Perfect Competition in the Economy
The document Worksheet: The Theory of the Firm under Perfect Competition- 1 | Economics Class 11 - Commerce is a part of the Commerce Course Economics Class 11.
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FAQs on Worksheet: The Theory of the Firm under Perfect Competition- 1 - Economics Class 11 - Commerce
| 1. What is the theory of the firm under perfect competition? |  |
Ans. The theory of the firm under perfect competition is an economic concept that describes the behavior and decision-making process of a firm operating in a perfectly competitive market. In this theory, firms are assumed to be price takers, meaning they have no control over the market price and must accept it as given. They aim to maximize their profits by optimizing their production and cost decisions.
| 2. What are the characteristics of a perfectly competitive market? | |
Ans. A perfectly competitive market is characterized by several key features. Firstly, there are many buyers and sellers in the market, none of whom have significant market power to influence the price. Secondly, all firms in the market produce identical products, leading to perfect substitutability. Thirdly, there is free entry and exit of firms in the market, ensuring long-run equilibrium. Lastly, there is perfect information available to all market participants.
| 3. How does a firm determine its profit-maximizing level of output in perfect competition? | |
Ans. In perfect competition, a firm determines its profit-maximizing level of output by equating its marginal cost (MC) with the market price (P). As a price taker, the firm cannot influence the market price and must accept it as given. By producing at the level where MC equals P, the firm ensures that it minimizes costs and maximizes profits. Any level of output where MC is greater than P would lead to losses, while any level where MC is less than P would not be optimal.
| 4. What is the relationship between a firm's short-run and long-run profits in perfect competition? | |
Ans. In perfect competition, a firm can generate positive economic profits in the short run if the market price exceeds its average total cost (ATC). However, in the long run, due to the absence of barriers to entry, new firms can enter the market, increasing competition. This leads to an increase in supply, which eventually drives the market price down. As a result, firms in the long run earn zero economic profits, as the market price equals their average total cost.
| 5. How does perfect competition benefit consumers? | |
Ans. Perfect competition benefits consumers in multiple ways. Firstly, it ensures that consumers have access to a wide range of products at competitive prices. The presence of many sellers and perfect information allows consumers to make informed choices and select the best product for their needs. Additionally, the absence of market power among firms prevents them from charging excessive prices. This competition-driven market structure promotes efficiency, innovation, and consumer welfare.
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