QB CH-4 Questions

CA CPT Economics Question Bank

Ch-4 MARKET FORMS & PRICE – OUTPUT DETERMINATION OF MARKETS

  1. Which of the following statements best describe a “Market”?
  • Place where shares and securities are bought and sold.
  • Place where Fruits and Vegetables are bought and sold.
  • Place where Buyers and sellers meet and bargain over a commodity for a price.
  • Place where transactions takes place.
  1. The market for foodgrains, Cereals, Vegetables, etc. closely resembles-
  • Perfect competition
  • Monopoly
  • Monopolistic competition
  • oligopoly
  1. Air travel service Industry is an example of –
  • Perfect competition
  • Monopoly
  • Monopolistic competition
  • oligopoly
  1. Toothpaste manufacturing industry is an example of
  • Perfect competition
  • Monopoly
  • Monopolistic competition
  • Oligopoly
  1. Automobile (Cars) Manufacturing Industry is an example of –
  • Perfect competition
  • Monopoly
  • Monopolistic competition
  • Oligopoly
  1. Toilet soaps industry is an example of –
  • Perfect competition
  • Monopoly
  • Monopolistic competition
  • Oligopoly
  1. Mobile phone services providers is an example of
  • Perfect competition
  • Monopoly
  • Monopolistic competition
  • Oligopoly
  1. The structure of the cold drink Industry in India is best described as
  • Perfectly competitive
  • Monopolistic
  • Monopolistically competition
  • Oligopolistic
  1. In which of the following market conditions, does a firm maximizes its profit when its marginal Revenue is equal to Marginal cost?
  • Perfect competition
  • Monopoly
  • Monopolistic competition
  • All of the above
  1. As in Perfect competition, the firms operating in a monopolistically competitive industry can realize only normal profits in the long run because
  • The firms tend to have diseconomies of scale in the long run
  • There are virtually no entry or exit barriers
  • Consumers are more price sensitive in the long ruin that in the short run
  • Cartels agreements tend to be more unstable with the increase of time as member firms try to increase their profits by cheating on the agreement.
  1. The AR curve and Industry Demand curve are same in the case of –
  • Monopoly
  • Oligopoly
  • Perfect competition
  • None of the above
  1. Why is the demand curve of the market in monopoly is represented by the Demand curve of the firm?
  • Because there are many firm in the market
  • Because there is only one firm in the market
  • Because there is only one buyer in the market
  • Because there are many buyers in the market
  1. Under which of the following market structures is the price lower and output larger?
  • Perfect competition
  • Monopolistic competition
  • Monopoly
  • Oligopoly
  1. Which of the following statements about price and marginal cost (MC) in competitive and monopolized markets is true?
  • In competitive Markets, Price = MC; in monopolized markets, Price > MC.
  • In competitive Markets, Price = MC; in monopolized markets price = MC
  • In competitive markets, price > MC; in monopolized markets, price > MC
  • In competitive markets, price > MC; in monopolized markets, price = MC
  1. Which of the following features is not seen in imperfect competition ?
  • Few sellers
  • Product differentiation
  • Price wars
  • All goods are homogenous
  1. In India which of the following best describes a perfectly competitive market?
  • Sugarcane cultivation
  • Indian railways
  • Toilet soap industry
  • Electricity distribution
  1. How are prices determined under perfect competition?
  • At the equilibrium price of Firm
  • At the equilibrium price of industry
  • At the point where MR = MC
  • All of these
  1. Under perfect competition, price elasticity of demand is –
  • Nil
  • Less Elastic
  • More elastic
  • Infinity
  1. In a perfectly competitive market, the demand curve is –
  • Relatively inelastic
  • Unitary elastic
  • Relatively elastic
  • Infinitely elastic
  1. In India, the milk Market resembles a perfectly competitive industry. If the industry is an increasing cost industry, the long run supply curve of the industry –
  • Slopes upward to the right
  • Slopes downward to the right
  • Would be a vertical straight line
  • Would be horizontal straight line
  1. One of the essential condition of perfect competition is –
  • Product Differentiation
  • Multiplicity of prices for identical product at any one time.
  • Many sellers and few buyers
  • Only one price for identical goods at any one time
  1. Which of the following statements regarding perfect competition is false?
  • Supply and Demand forces determine the price of a commodity
  • All buyers in the market are always position to influence the market
  • In the short run, the Firm takes Market price as given
  • Considering the market price, Firm adjusts the level of output to maximize profits
  1. Which of the following statements is false in a perfectly competitive market with constant returns to scale?
  • The long run average cost curve will be horizontal at each firm’s minimum average cost
  • The long run average cost curve will be horizontal at each firm’s zero-profit price
  • The long run equilibrium in a competitive industry will be one with no economic profit
  • With a constant increase in one input, keeping other inputs constant, the output could be increase
  1. Under perfect competition, Demand (D) =
  • Average Revenue (AR)
  • Marginal Revenue (MR)
  • Price (P)
  • All of the above
  1. In perfect competition, since the firm is a price-taker, the ____ curve is a Straight line.
  • Marginal cost
  • Total cost
  • Total revenue
  • Marginal revenue
  1. Price – taking Firms, i.e. Firms that operate in a perfectly competitive market, are said to be “small” relative to the market. Which of the following best describes this smallness?
  • The individual firm must have fewer than 10 employees
  • The individual firm faces a downward-sloping demand curve
  • The individual firm has assets of less than Rs. 20 lakh
  • The individual firm is unable to affect market price through its output decisions
  1. The Firm in a perfectly competitive market is a price taker. This designation as a price taker is based on the assumption that –
  • The Firm has some, but not complete, control over its product price
  • There are so many buyers and sellers in the market that any individual Firm cannot affect the market
  • Each firm produces a homogeneous product
  • There is easy entry into or exit from the market place
  1. Under perfect competition, total revenue is equal to marginal revenue times the quantity sold. This statement is –
  • True
  • False
  • Partially true
  • None of the above
  1. In perfect competition, a Firm maximizing its profits will set its output at that level where –
  • Average Variable cost = price
  • Marginal cost = price
  • Fixed cost = price
  • Average fixed cost = price
  1. In a perfectly competitive market, if MC = Marginal cost, MR = Marginal Revenue, AR = Average cost and P = Price , the first order condition for profit maximization will be –
  • MC<MR<AR<P
  • MC=MR=AR=P
  • MC>MR>AR>P
  • MC=MR>AR=P
  1. Under Perfect competition, in the short-run, if AR>AC at the point when MC=MR, it means that the Firm –
  • Normal profits only
  • Super normal profits
  • Losses
  • All of the above
  1. Under perfect competition, in the short-run, if AR < AC at the point when MC = MR, it means that the Firm-
  • Normal profits only
  • Super normal profits
  • Losses
  • All of the above
  1. Under perfect competition, in the long-run, the industry is said to be in equilibrium, if –
  • All the firms are earning normal profits only.
  • There is no further entry or entry or exit of Firms to / from the market
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. Under perfect competition, the firm’s supply curve will be same as –
  • Marginal revenue (MR) curve
  • Average revenue (AR) curve
  • Marginal cost (MC) curve
  • Average cost (AC) curve
  1. In perfect competition, in the long run, if a new firm enters the industry, the supply curve shifts to the right resulting in –
  • Fall in price
  • Rise in price
  • Reducing in supply
  • No change in price
  1. A monopoly will not be a perfect monopoly, if cross elasticity of demand of the related goods is
  • High
  • Low
  • One
  • Zero
  1. If the Electricity Market is a Natural monopoly, it is preferred to have a single producer rather than several small producers because –
  • Marginal cost is maximized
  • Marginal revenue is maximized
  • Average total cost is minimized
  • Profits are maximized
  1. By imperfect monopoly, we mean-
  • It is possible to substitute the monopolized product with another monopolized product
  • Entry of new firms is possible to produce the same product
  • The amount of output produced is very small
  • None of the above
  1. In case of a profit maximizing monopolist, what point determines the selling price?
  • Profit where marginal cost equals average revenue
  • Point where average cost equals marginal revenue
  • Point where average cost equals average revenue
  • Point where marginal cost equals marginal revenue
  1. A monopolist who faces a negatively sloped demand curve operates in the region where the elasticity of demand is –
  • Less than one
  • Equal to one
  • Greater than one
  • Between than one
  1. Monopolies are allocatively inefficient because
  • They restrict the output to keep the price higher than under perfect competition
  • They charge a price higher than the marginal cost
  • Both (a) and (b) are correct
  • Both (a) and (b) are incorrect
  1. The degree of monopoly power is measured in terms of difference between –
  • Marginal cost and price
  • Average cost and average revenue
  • Marginal cost and average cost
  • Marginal revenue and average revenue
  1. Economics of scale allows the monopolist to set a ___ price than any new entrant.
  • Higher
  • Lower
  • Economics of scale does not influence the price
  • At the existing market rate
  1. If marginal revenue exceeds marginal cost, a monopoly should –
  • Increase input
  • Decrease input
  • Keep output the same because profits are maximized when marginal revenue exceeds marginal cost
  • Raise the price
  1. A monopolist who is selling in two markets in which demand is not identical will be unable to maximize his profits unless he –
  • Sells below costs of production in both markets
  • Practices price discrimination
  • Equates the volume of sales in both markets
  • Equals marginal costs with marginal revenue in one market only.
  1. Price discrimination in a Monopoly is described as –
  • Same product selling at different prices since the costs of production are different
  • Same product selling at different prices though the costs of production are same
  • Different products having same price though cost of production are same
  • Different products having different prices since costs of production are different
  1. Why is first degree price discrimination termed as the extreme form of price discrimination –
  • All the firms in the industry undertake price discrimination
  • Firms in the industry discriminate in price for almost all the products they are producing
  • Firms earn the least profit in this type of discrimination; they are just able to cover the cost
  • In this type of discrimination firms charge the consumers the maximum price
  1. Which of the following statements in not true about a discriminating monopolist?
  • He operates in more than one market
  • He makes more profit because he discriminates
  • He maximizes his profits in each market
  • He charges different prices in each market
  1. For practicing price discrimination, the seller should be able to divide his market into two or more sub-markets. The statement is –
  • True
  • False
  • Partially true
  • None of the above
  1. Discriminating monopolist divides the total production in two markets in a way that –
  • MR earned in market with higher elasticity of demand is greater than the other with lower elasticity of demand.
  • MR earned in market with lower elasticity of demand is greater than the other
  • MR earned in each market is the same
  • MR earned in each market is maximum
  1. Product differentiation in a monopolistic competition could lead to –
  • Horizontal demand curve
  • Downward sloping demand curve
  • Vertical demand curve
  • Downward sloping supply curve
  1. Under monopolistic competition, each seller tries to develop brand loyalty for his product. This statement is –
  • True
  • False
  • Partially true
  • None of the above
  1. The sale of branded articles is common in a situation of-
  • Excess capacity
  • Monopolistic competition
  • Monopoly
  • Pure competition
  1. Through more advertising, a monopolistically competitive firm has successfully created more demand for its product. It would have resulted in shifting of –
  • AC curve upward
  • MR curve to the left
  • AC Curve upward and MR curve to the right
  • AC curve upward and MR curve to the left
  1. Under Monopolistic competition, in the short-run, the firm can never make losses. This statement is –
  • True
  • False
  • Partially true
  • None of the above
  1. Under monopolistic competition, in the short-run, the condition AR=MR=MC=AC, means that the firm is earning –
  • Normal profits only
  • Super normal profits
  • Losses
  • All of the above
  1. Under monopolistic competition, in the short-run, if AR < AC at the point when MC = MR, it means that the firm-
  • Normal profits only
  • Super normal profits
  • Losses
  • All of the above
  1. In monopolistic competition, the long-run equilibrium price will be equal to –
  • Marginal revenue
  • Average cost
  • Marginal cost
  • Both (a) and (c)
  1. In the long-run, industry equilibrium is achieved in monopolistic competition only if LAC = LMC. This statement is –
  • True
  • False
  • Partially true
  • None of the above
  1. In monopolistic competition, a Firm is in long run equilibrium –
  • At the minimum point of the LAC curve.
  • In the declining segment of the LAC curve.
  • In the rising segment of the LAC curve
  • When price is equal to marginal cost.
  1. The long-run equilibrium outcomes in monopolistic competition and perfect competition are similar, because in both market structures –
  • The efficient output level will be produced in the long run
  • Firms will be producing at minimum average cost
  • Firms will only earn a normal profit
  • Firms realize all economies of scale
  1. If firms in the toothpaste industry have the following market shares, which market structure would be describe the industry?
Firm Market shares %
White Shine Ltd 29.8
White Teeth Ltd 18.7
More White Teeth Ltd 14.3
Sure Health Ltd 11.6
Bright Teeth Ltd 9.4
Dental Care Ltd 8.8
Brighter than  white Ltd 7.4
Total 100.0

 

  • Perfect competition
  • Monopolistic competition
  • Oligopoly
  • monopoly
  1. One characteristic not typical of oligopolistic industry is
  • Horizontal demand curve
  • Too much importance to non-price competition
  • Price stickiness
  • A small number of firms in the industry
  1. Duopoly is a specific form where are –
  • No seller at all
  • Only one seller
  • Two seller
  • Large number of sellers
  1. A price war in an oligopoly refers to –
  • Successive and continued price cuts by the firms to increase sales and revenues
  • Free gifts offers by all firms on a competitive basis
  • Flooding the market with its goods by one firm leading to price reduction by others
  • Increase in the price by one firm and other firms following in a reverse way by decreasing their prices.
  1. As per kinked demand curve theory of oligopoly, the kink is formed by-
  • Prevailing price
  • Higher than prevailing price
  • Lower than prevailing price
  • Origin
  1. As per kinked demand curve theory of oligopoly, the demand above the kink is –
  • More elastic
  • Less elastic
  • Unit elastic
  • Zero elastic
  1. As per kinked demand curve theory of oligopoly, the demand below the kink is –
  • More elastic
  • Less elastic
  • Unit elastic
  • Zero elastic
  1. What does the kinked demand curve explain?
  • Price differentiation
  • Other than price competition
  • Rivalry reactions in an oligopoly
  • None of the above
  1. A firm having a kinked demand curve indicates that
  • If the firm increases the price, competitive firms reduce the price
  • If the firm increases the price, competitive firms do not reduce the price
  • If the firm increases the price, competitive firm do not increase the price, competitive firm do not increase the price.
  1. The kinked demand curve model assumes that price elasticity of demand-
  • Is higher for a price increase than for a price decrease
  • Is lower for a price increase than for a price increase
  • Is perfectly elastic for a price increase perfectly inelastic for a price decrease
  • Is perfectly inelastic for a price increase and perfectly elastic for a price increase
  1. In oligopoly, why it difficult to determine the equilibrium price and output?
  • All the firms take their independence decisions
  • Firms are interdependent making it difficult to specify the particular reaction of the rivals
  • Very few firms exist in the market
  • A large number of firms exist in the market.
  1. If the demand curve confronting an individual firm is perfectly elastic then
  • The firm is a price taker
  • The firm cannot influence the price
  • The firm’s marginal revenue curve coincides with average revenue curve
  • All of the above
  1. When total revenue is less than accounting costs, it means that the firm incurs losses –
  • In the accounting sense
  • In the economic sense
  • Both (a) and (b)
  • Neither (a) nor (b)
  1. When total revenue equals economic costs, it means that the firm –
  • Has No-Profit-No-Loss
  • Earns normal profits
  • Earns more than normal profits (i.e. super normal profits)
  • Incurs losses in the accounting  sense
  1. When total revenue exceeds economic costs, it means that the firm –
  • Has No-Profit-No-Loss
  • Earns normal profits
  • Earns more than normal profits (i.e. super normal profits)
  • Incurs losses
  1. When total revenue is less than economic costs, it means that the firm –
  • Incurs losses in the economic sense
  • Earns normal profits
  • Earns more than normal profits (i.e. super normal profits)
  • Incurs losses in the accounting sense
  1. Total revenue =
  • Money which a firm realises by selling certain units of a commodity.
  • Revenue earned per unit of output
  • Change in total revenue (TR) resulting from the sale of an additional unit of the commodity.
  • None of the above
  1. If total revenue = Rs. 1,00,000 when 20,000 units are sold, then total revenue =
  • 1,00,000
  • 20.000
  • 5
  • 1,20,000
  1. When price is Rs. 20, 5 units can be sold. When price is reduced to Rs. 19, 6 units can be sold. Here, marginal revenue will be –
  • 14
  • 27
  • 20
  • 19
  1. When price is Rs. 50, 12 units can be sold. When price is reduced to Rs. 48, 15 units can be sold. Here, marginal revenue will be –
  • 120
  • 40
  • 60
  • 2
  1. If a seller gets Rs. 10,000 by selling 100 units and Rs. 14,000 by selling 120 units, his marginal revenue is
  • 4,000
  • 450
  • 200
  • 100
  1. When price = Rs. 20, quantity demanded is 9 units, and when price = Rs. 19, quantity demanded is 10 units. What is the marginal revenue resulting from an increase in output from 9 units to 10 units?
  • 20
  • 19
  • 10
  • 1
  1. Generally, as quantity sold increases, marginal revenue (AR) curve-
  • Increases
  • Decreases
  • Remains constant
  • Cannot be ascertained
  1. Marginal revenue (MR)-
  • Will have positive values only
  • Will have negative values only
  • Can be positive or zero, but not negative
  • Can be positive or zero or even negative
  1. If average revenue (AR) curve is depicted on a graph with quantity on X axis-
  • AR will not go below the X axis –
  • AR may go below the X axis.
  • AR cannot be depicted on the graph at all
  • None of the above
  1. Which of the following is correct?
  • If marginal revenue is positive and falling, total revenue will rise at a decreasing rate.
  • Total revenue is equal to price times the quantity sold
  • Marginal revenue and average revenue can be calculated from total revenue
  • All of the above
  1. If marginal revenue = MR, average revenue = AR, and price Elasticity of demand = ‘e’ which of the following is correct?
  • MR = AR ×
  • AR = MR ×
  • MR = AR ×
  • AR = MR ×
  1. If marginal revenue = MR, Price Elasticity of Demand = ‘e’, and MR is possible (i.e. MR>0), e will be
  • E > 1
  • E < 1
  • E = 1
  • E = zero
  1. If marginal revenue = MR, Price Elasticity of Demand = ‘e’, and MR is negative (i.e. MR>0), e will be
  • E > 1
  • E < 1
  • E = 1
  • E = zero
  1. If marginal cost = MC, and Marginal revenue = MR, then, for achieving equilibrium output –
  • MC curve should have positive slope
  • MC curve should have negative slope
  • MC curve should be parallel to X axis
  • MC curve should be parallel to Y Axis
  1. If any unit of production adds more to cost than to revenue it will result into-
  • Increase in profit
  • Decrease in profit
  • No change
  • Loss
  1. When the firm is said to be in equilibrium?
  • When it maximizes its profit
  • When it maximizes its losses
  • When revenue is equal to cost
  • None of these
  1. Let average cost = AC, and Average revenue = AC, if AR>AC, it means that the Firm-
  • Is earning super – normal profits
  • Is earning normal profits
  • Is making losses
  • Has to shut – down
  1. Let average cost = AC, and average revenue = AC. If AR < AC, it means that the firm –
  • Is earning super-normal profits
  • Is earning normal profits
  • Is making losses in the economic sense
  • Has to shut – down.
  1. Let average cost = AC, and average revenue = AR. If AR < AC, it means that the firm-
  • Is earning super – normal profits
  • Is earning normal profits.
  • Is making losses
  • Has to shut – down.
  1. For earning super-normal profits, the condition is ……….. at the point when MC = MR (MC cutting from below)
  • AR > AC
  • AR = AC
  • AR < AC
  • None of the above
  1. The average profit is the difference between-
  • AC and TC
  • AC and VC
  • AC and AR
  • AC and TR
  1. If AR < AVC then the firm –
  • Will continue and make profits
  • Will shut – down
  • Will have losses but will not shut down
  • Will increase the output
  1. What should firm do if total revenue from its product does not equal or exceeds its total variable cost?
  • Firm should carry production
  • Firm should stop the production
  • Firm should carry production and at least try to get revenues equal to fixed cost
  • None of these


 

Use table to answer the following  5 questions.

The following table provides cost and price information for an individual firm. The First two columns represent the demand curve that the firm faces. The firm has a fixed amount of capital equipment, but can change the level of other inputs such as labour and materials. Calculate the missing values in the table, and use the table to answer the below questions. (Make sure you answer each questions) using the production level specified).

Q P TC TVC MC TR MR
0 130 45
1 124 8
2 118 125
3 112 159
4 106 193
5 100 230
6 94 273
7 88 325
8 82 389
9 76 465

 

  1. When the production equals 4 units, the firm’s:
  • Fixed cost is 100 and its variable cost is 93.
  • Fixed cost is 193 and its variable cost is 0.
  • Fixed cost is 0 and its variable cost is 193
  • Fixed cost is 45 and its variable cost is 148
  1. When production equals 5 units, the firm’s total revenue is :
  • 100
  • 270
  • 324
  • 500
  1. When production equals 6 units, the firm’s marginal revenue is :
  • 384
  • 94
  • 64
  • 2.
  1. When production equals 7 units, the firm’s profit is :
  • 0
  • 41.57
  • 291
  • 336
  1. To maximize its profit, the firm should produce :
  • 0 units
  • 3 units
  • 5 units
  • 7 units

 

 

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