CBSE Class 12 Economics The Theory of the Firm under Perfect Competition MCQs Set A

Question : Perfect competition is an industry with 

a) a few firms producing identical goods.

b) many firms producing goods that differ somewhat.

c) a few firms producing goods that differ somewhat in quality.

d) many firms producing identical goods.

Answer : D
 

Question : Firms use marketing to       

a) influence a consumer's buying decision.

b) convince customers that their product is worth its price.

c) persuade buyers that their product is superior to others.

d) All of the above answers are correct.
 

Answer :  D 
 

Question : In perfect competition, the elasticity of demand for the product of a single firm is 

a) infinite, because many other firms produce identical products.

b) zero, because many other firms produce identical products.

c) zero, because the firm produces a unique product.

d) infinite, because the firm produces a unique product.

Answer :  A
 

Question : Price of a goods is determined at a point where : 

a) Demand > Supply

b) Demand < Supply

c) Demand = Supply

d) None of these

Answer :   C
 

Question : Total economic profit is

a) total revenue minus total opportunity cost.

b) marginal revenue minus marginal cost.

c) total revenue divided by total cost.

d) marginal revenue divided by marginal cost.

Answer :   A
 

Question : If you have found the percentage of the value of sales accounted for by the four largest firms in an industry, you have found the        

a) elasticity of supply value.

b) Herfindahl-Hirschman Index.

c) elasticity of demand value.

d) four-firm concentration ratio.

Answer : D
 

Question : The figure above portrays a total revenue curve for a perfectly competitive firm. Curve A is straight because the firm 

a) has perfect information.

b) wants to maximize its profits.

c) is a price taker.

d) faces constant returns to scale

Answer :   C
 

Question : In the above table, if the quantity sold by the firm rises from 6 to 7, its marginal revenue is 

a) $90.

b) $30.

c) $105.

d) $15.

Answer : D
 

Question :  In the above table, the firm 

a) must be in a perfectly competitive industry, because its marginal revenue is constant.

b) cannot be in a perfectly competitive industry, because its short-run economic profits are greater than zero.

c) cannot be in a perfectly competitive industry, because its long-run economic profits are greater than zero.

d) must be in a perfectly competitive industry, because its marginal cost curve eventually rises

Answer : A
 

Question : The above figure illustrates a firm's total revenue and total cost curves. Which one of the following statements is FALSE? 

a) At output Q1 the firm makes zero economic profit.

b) At an output above Q3 the firm incurs an economic loss.

c) Economic profit is the vertical distance between the total revenue curve and the total cost curve.

d) At output Q2 the firm incurs an economic loss.

Answer :  D
 

Question :  Which of the following is the best example of a natural monopoly?  

a) owning the only licensed taxicab in town

b) the United States Postal Service

c) ownership of the only ferry across Puget Sound for twenty miles

d) the cable television company in your hometown

Answer : D

Question :  Which of the following is NOT correct about patents?     

a) Patents stimulate innovation.

b) A patent is a barrier to entry.

c) Patents enable a firm to be a permanent monopoly.

d) Patents encourage invention of new products.
 

Answer :  C
 

Question : For a firm in perfect competition, a diagram shows quantity on the horizontal axis and both the firm's marginal cost (Mc) and its marginal revenue (MR) on the vertical axis. The firm's profit-maximizing quantity occurs at the point where the 

a) MC curve intersects the MR curve from above, going from left to right.

b) slope of the MC curve is zero.

c) MC curve intersects the MR curve from below, going from left to right.

d) MC and MR curves are parallel.

Answer :  C
 

Question : A perfectly competitive firm's marginal cost exceeds its marginal revenue at its current output. To increase its profit, the firm will 

a) increase its output.

b) raise its price.

c) lower its price.

d) decrease its output.

Answer :  D
 

Question : Which of the following is different about perfect competition and monopolistic competition?     

a) Firms in monopolistic competition compete on their product's price as well as its quality and marketing.

b) In monopolistic competition, entry into the industry is unblocked.

c) Perfect competition has a large number of independently acting sellers.

d) Only firms in monopolistic competition can earn an economic profit in the short run.
 

Answer :  A
 

Question : Which statement is correct ? 

a) In very short period, supply is perfectly inelastic, price is affected by both demand conditions.

b) Supply curve elasticity depends on time period

c) Both a) and b)

d) None of the above

Answer :  C
 

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

a) Total cost

b) Marginal cost

c) Total revenue

d) Marginal revenue

Answer :  D
 

Question : A firm that shuts down and produces no output incurs a loss equal to its 

a) marginal costs.

b) total fixed costs.

c) total variable costs.

d) marginal revenue.

Answer :  B
 

Question : In perfect competition, which of the following curves generally lies below the demand curve and slopes downward?

a) Average revenue

b) Average cost

c) Marginal revenue

d) Marginal cost

Answer : C
 

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

a) MR and MC

b) AR and MR

c) AR and MC

d) TC and TR

Answer :  A
 

Question : Based on the table above which shows Chip's costs, if rice sells for $600 a ton, Chip 

a) earns an economic profit, but should shut down in the short run.

b) incurs an economic loss, but should stay open in the short run.

c) incurs an economic loss and should shut down in the short run.

d) earns an economic profit and should stay open in the short run.

Answer :   B
 

Question : In the above figure, if the firm increases its output from Q2 to Q1, it will 

a) reduce its marginal revenue

b) increase its profit.

c) increase its marginal revenue.

d) decrease its profit.

Answer :  D
 

Question :  Which one is a feature of monopolistic competition ? 

a) Differentiated Product

b) Selling Cost

c) Imperfect Knowledge of the Market

d) All the above

Answer :  D
 

Question :  Which of the following is an example of perfect competition?     

a) Agriculture

b) Banking sector

c) Car manufacturing

d) Railways

Answer :  A
 

Question : The short-run supply curve for a perfectly competitive firm is its 

a) marginal cost curve above the horizontal axis.

b) average cost curve above the horizontal axis.

c) average cost curve above its shutdown point.

d) marginal cost curve above its shutdown point.

Answer :  D
 

Question : The figure represents a firm in a perfectly competitive market. If the firm does not shut down, the least amount of output that it will produce is 

a) 10 units.

b) 8 units.

c) 5 units.

d) less than 5 units

Answer :  B
 

Question : . Which of the following market types has a large number of firms that sell similar but slightly different products?   

a) perfect competition

b) oligopoly

c) monopolistic competition

d) monopoly

Answer :  C
 

Question : In a perfectly competitive market, the type of decision a firm has to make is different in the short run than in the long run. Which of the following is an example of a perfectly competitive firm's short-run decision?         

a) what price to charge buyers for the product

b) whether or not to enter or exit an industry

c) the profit-maximizing level of output

d) how much to spend on advertising and sales promotion

Answer :  C
 

Question :  In a perfectly competitive industry, the industry supply curve is the sum of the 

a) average total cost curves of all the individual firms.

b) supply curves of all the individual firms.

c) average variable cost curves of all the individual firms.

d) average fixed cost curves of all the individual firms.

Answer :  B
 

Question : Which of the following would create a natural monopoly?  

a) requirement of a government license before the firm can sell the good or service

b) technology enabling a single firm to produce at a lower average cost than two or more firms

c) an exclusive right granted to supply a good or service

d) ownership of all the available units of a necessary input

Answer :  B 

Question : An industry with a large number of firms, differentiated products, and free entry and exit is called     

a) oligopoly.

b) monopoly.

c) monopolistic competition.

d) perfect competition.

Answer : C
 

Question : Suppose the cost curves in the above figure apply to all firms in the industry. If the initial price is P1, firms are 

a) making an economic profit and some firms will leave the industry.

b) incurring an economic loss and some firms will leave the industry.

c) making an economic profit and some firms will enter the industry.

d) incurring an economic loss and some firms will enter the industry.

Answer :  B
 

Question : Market situation where there is only one buyer is: 

a) Monopoly

b) Monopsony

c) Duropoly

d) None of these

Answer :  B
 

Question : Can TR be a horizontal Straight line?

a) May be

b) Can’t say

c) Yes

d) No

Answer : D
 

Question : Which of the following market types has all firms selling products so identical that buyers do not care from which firm they buy?  

a) perfect competition

b) oligopoly

c) monopolistic competition

d) monopoly
 

Answer :  A
 

Question : If the cost curves shown in the above figure apply to all firms in the industry and the initial price is P1, in the long run the price will be 

a) greater than P1.

b) zero.

c) equal to P1.

d) less than P1

Answer :  D
 

Question : External economies are factors beyond the control of an individual firm that ________ as the total industry output increases. 

a) raise its marginal revenue

b) raise its costs

c) lower its costs

d) lower its profit

Answer :  C
 

Question : In perfect competition, a firm: 

a) Determines price

b) Obtains price

c) Both a) and b)

d) None of these

Answer :  B
 

Question : If demand for a seller's product is perfectly elastic, which of the following is correct?   

a) There is no incentive to sell at a price below the market price.

b) It will not sell any output at all if it tries to price its product above the market price.

c) There are a very large number of perfect substitutes for the seller's product.

d) All of the above answers are correct.
 

Answer :  D
 

Question : If the slope of the long-run supply curve for a perfectly competitive industry is positive, the industry experiences 

a) internal economies.

b) external economies.

c) external diseconomies.

d) internal diseconomies

Answer :  C
 

Question : Among the obstacles to the efficient allocation of resources are all of the following EXCEPT 

a) competition.

b) monopoly.

c) external benefits.

d) external costs.

Answer :  A
 

Question : In the short run, a perfectly competitive firm can 

a) earn a normal profit.

b) incur an economic loss.

c) earn an economic profit.

d) earn an economic profit, earn a normal profit, or incur an economic loss.

Answer :  D
 

Question :  The demand for a product produced in a perfectly competitive market permanently increases. In the short run the price 

a) rises and each firm produces less output.

b) does not change because each firm produces more output.

c) rises and each firm produces more output.

d) does not change as new firms enter the industry.

Answer : C
 

Question : Which is a characteristic of the market ? 

a) One Area

b) Presence of both Buyers and Sellers

c) Single Price of the Commodity

d) All the above

Answer :  D
 

Question : In perfect competition, in the long run, ______________?

a) There are large profits for the firm

b) There is no profit and no loss for the firm

c) There are negligible profits for the firm

d) There are large losses for the firm

Answer :  B
 

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

a) 3.0

b) 1.0

c) 4.0

d) 2.0

Answer :  B