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Economics Theory of Market MCQ
1. A monopolist is able to maximize his profits when:
(a) His output is maximum
(b) He charges exorbitant high price
(c) His average cost is minimum
(d) His marginal cost is equal to marginal revenue
A monopolist earns maximum profit when he attains equilibrium point which is achieved when MR = MC. So, option (d) is correct.
2. Which of these are characteristics of Perfect Competition
(a) Many Sellers & Buyers
(b) Homogeneous Product
(c) Free Entry and Exit
(d) All of the above
Many Sellers & Buyers, homogeneous Product & Free Entry and Exit are characteristics of Perfect Competition. So, option (d) is correct
3. Under which Market Situation demand curve is linear and parallel to X axis:
(a) Perfect Competition
(b) Duopoly
(c) Monopolistic Competition
(d) Oligopoly
In perfect competition market situation, demand curve is linear and parallel to X axis. So, option (a) is correct
4. Under which market structure, average revenue of a firm is equal to its marginal revenue:
(a) Imperfect competition
(b) Monopoly
(c) Perfect competition
(d) Monopolistic competition
Under perfect competition, AR = MR. So, option (c) is correct.
5. Under which of the following forms of market structure does a firm has no control over the price of its product:
(a) Monopoly
(b) Oligopoly
(c) Monopolistic competition
(d) Perfect competition
Under monopoly, oligopoly, monopolistic competition, a firm has some control on the price determination. But in case of perfect competition, a firm has no control over price determination because price is determined by the market force of demand and supply. So, option (d) is correct.
6. A firm can sell as much as it wants at the market price. The situation is related to
(a) perfect completion
(b) monopoly
(c) monopolistic competition
(d) Duopoly.
Perfect competition is a situation where a firm can sell as much as it wants at the market price. Firm cannot take its own decision for price determination. So, option (a) is correct
7. In a perfectly competitive market, —————–.
(a) There are a large number of buyers and a small number of sellers
(b) There are a large number of sellers and small number of buyers
(c) There are a small number of sellers and small number of buyers
(d) There are a large number of buyers and sellers.
Perfectly competitive market has a large number of buyers and a large number of sellers. So, option (d) is correct.
8. Which industry best fits the description of a perfectly competitive market?
(a) Car
(b) Computer
(c) Chemical
(d) Agriculture
Agriculture has most of the characteristics of perfect competitive market. So, option (d) is correct.
9. Monopolistic competition means :
(a) single firm producing close substitutes
(b) many firms producing homogeneous products
(c) many firms producing differentiated product
(d) all of these.
Monopolistic competition exists where there is a large group of firms produce commodities similar to one another but not identical. So, option (c) is correct.
10. Under Monopolistic competition the cross elasticity of demand for the product of a single firm would be:
(a) Unitary
(b) Elastic
(c) Inelastic
(d) Zero
Under Monopolistic competition, the cross elasticity of demand for the product of a single firm would be zero. So, option (d) is correct.
11. A single seller of a commodity having no close substitutes can be termed as:
(a) duospony
(b) pure monopoly
(c) monopoly
(d) duopoly.
Pure monopoly is a market condition where there is a single seller of a commodity, which has no close substitutes. So, option (b) is correct.
12. A situation in which the number of competing firms is relatively small is known as
(a) perfect competition
(b) duopoly
(c) monopsony
(d) oligopoly.
In oligopoly, a few competing firms dominate the market. So, option (d) is correct.
13. OPEC is an example of:
(a) Monopoly
(b) Monopsony
(c) Oligopoly
(d) Perfect Competition
OPEC is a organisation of a few petroleum selling countries. It is an example of oligopoly. So, option (c) is correct.
14. The market structure in which the number of seller is small and there is interdependence in decision making by the firms is known as :
(a) perfect competition
(b) oligopoly
(c) monopoly
(d) monopsony.
Market having a few sellers and sellers are inter dependent on each other for decision making is called oligopoly. So, option (b) is correct.
15. Under perfect competition: which of the following equation is/are true?
(a) MC = P
(b) MC > P
(c) MC < P
(d) None of these
Under perfect competition, firm reaches equilibrium point when MC = P. So, option (a) is correct.
16. In a perfectly competitive market, when does affirm reach its equilibrium point?
(a) When marginal cost is equal to marginal revenue
(b) When average profit becomes zero
(c) When abnormal profit is zero
(d) When average profit is more than normal profit.
Under perfect competition a firm reaches equilibrium point when MR = MC. So, option (a) is correct.
17. ———– is the price at which demand for a commodity is equal to its supply:
(a) Normal Price
(b) Equilibrium Price
(c) Competitive price
(d) Desired Price
At equilibrium price, demand for a commodity is equal to its supply. So, option (b) is correct.
18. For maximum profit, the condition is:
(a) AR = TC
(b) MR = MC
(c) MR = AR
(d) MC = AC
Firm attains equilibrium point when MR = MC. At equilibrium point firm attains maximum total profit. So, option (b) is correct.
19. Condition for producer equilibrium is
(a) TR = AFC
(b) MC = MR
(c) AC = AR
(d) Any of these
Producer attain equilibrium when MR = MC. So, option (b) is correct.
20. What should firm do when Marginal revenue is more than marginal cost?
(a) Firm should expand output
(b) Attempt should be made to make them equal
(c) Prices should be controlled
(d) All of the these
Firm attains maximum profit when it reaches equilibrium point. At equilibrium point MR = MC. when MR is more than MC, firm should continue to expand output until it reaches MR = MC, so that it can earn maximum total profit. So, option (a) is correct.
21. In perfect competition, when the marginal revenue and marginal cost are equal, profit is —- ————–.
(a) Maximum
(b) Average
(c) Negative
(d) Lowest.
Under perfect competition, when marginal revenue and marginal cost. are equal, profit is maximum because at these level firm reaches equilibrium point. If firm tries to increase more production, firm’s revenue will start to decline. So, option (a) is correct.
22. In perfect competition, a firm increases profit when ———– exceeds the ——–.
(a) Total cost, total revenue
(b) Marginal cost, marginal revenue
(c) Average revenue, total fixed cost
(d) Average revenue, average cost.
Under perfect competition, a firm increases profit when average revenue exceeds average cost. So, option (d) is correct.
23. In perfect competition, a firm’s profit diminishes when ———– exceeds the ——–.
(a) Marginal revenue, average cost
(b) Marginal cost, marginal revenue
(c) Total revenue, average cost
(d) Average Cost, average Revenue.
Under perfect competition, a firm’s profit diminishes when average cost exceeds the average revenue. So, option (d) is correct.
24. What are conditions for the long run equilibrium of the competitive firm?
(a) LMC = LAC = P
(b) MR > MC
(c) P = MR
(d) All of these
For long run equilibrium of the competitive firm, Long run marginal cost = Long run average cost = Price. So, option (a) is correct.
25. If under perfect competition, the price line lies below the average cost curve, the firm would:
(a) Make only Normal profits
(b) Suffer losses
(c) Make abnormal profit
(d) Make supernormal profit
If under perfect competition, the price line lies below the average cost curve (i.e. price is below average cost) the firm would suffer losses. So, option (b) is correct.
26. When AR = Rs.20 and AC = Rs.16 the firm makes ———:
(a) Normal profit
(b) Net profit
(c) Abnormal profit
(d) Supernormal profit
If average revenue (AR) is more than average cost, the firm earns super normal profit. So, option (d) is correct.
27. Supernormal profits arises when:
(a) Total revenue is equal to total cost
(b) Total revenue is equal to variable cost
(c) Average revenue is more than average cost
(d) None of these
If AR is more than AC, the firm makes supernormal profit. So, option (c) is correct.
28. A firm practising price discrimination will be :
(a) charging different prices for different types of product
(b) Buying in the lower rate and selling in the higher rate
(c) Charging different prices in different markets of a product
(d) buying-only from firms selling in bulk at a concession.
A firm involved in price discrimination charges different prices in different markets of a product to earn extra profit. So, option (c) is correct.
29. Dumping involves:
(a) selling at a lower price in the market
(b) price discrimination between two markets
(c) production at lower cost
(d) price discrimination between the home market and foreign market.
Dumping involves price discrimination between the home market and foreign market. So, option (d) is correct.
30. If a seller realizes Rs.20,000 after selling 200 units and Rs.24,000 after selling 220 units. What is the marginal revenue here?
(a) Rs.2000
(b) Rs.650
(c) Rs.200
(d) Rs.300
Change in TR = 24000 − 20000 = 4000, Change in Quantity = 220 − 200 = 20, MR = 4000/20 = Rs.200. So, option (c) is correct.
31. In general, if the average revenue curve is a straight line, the marginal revenue curve will be.
(a) S-shaped
(b) A straight line
(c) Vertical-shaped
(d) Bell-shaped
Both AR and MR depends upon TR. So, in general, if the AR curve is a straight line, the MR will also be a straight line. So, option (b) is correct.
32. Marginal revenue will be positive if elasticity of demand is.
(a) Less than one
(b) More than one
(c) Negative
(d) zero
Relationship between AR, MR and Price elasticity of demand states that MR will be positive if Elasticity of Demand is more than 1. So, option (b) is correct.
33. Marginal revenue will be negative if demand is.
(a) Relatively elastic
(b) Unitary elastic
(c) Relatively inelastic
(d) All of the above.
Relationship between AR, MR and Price elasticity of demand states that MR will be negative if the Elasticity of Demand is less than 1. So, option (c) is correct.
34. In market structure there are small number of sellers and there is inter dependence among the firms is known as:
(a) Imperfect competition
(b) Oligopoly
(c) Duopoly
(d) Monopolistic competition
In oligopoly there are few sellers who are interdependent in decision making. So, option (b) is correct.
35. An increase in supply with constant demand leads to:
(a) Increase in price and decline in quantity
(b) Decline in both price and quantity
(c) Increase in both price and quantity
(d) Decline in price and increase in quantity
If supply increases, but demand does not increase (demand is constant), the prices will fall. So, option (d) is correct.
36. A competitive firm in the short run incur losses. The firm continues production, if:
(a) P> AVC
(b) P = AVC
(c) P < AVC
(d) P > = AVC
Under Short run a competitive firm may incur losses due to its fixed cost. But the firm will continue production if price > = Average variable Cost. So, option (d) is correct.
