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

Question: MR of nth unit is given by
a) TRn – TRn – 1
b) TRn + TRn – 1
c) TRn/TRn – 1
d) All of these
Answer: a

Question: The coefficient of price elasticity of supply of a good is 3. It is known as
a) Unitary Elastic Supply
b) Perfectly Inelastic Supply
c) Elastic Supply
d) Inelastic Supply
Answer: c

Question: The revenue of a firm per unit sold is its
a) MR
b) AR
c) TR
d) TC
Answer: b

Question: Under perfect competition the number of firms
a) Is about 10
b) Is large
c) Are many but limited
d) Is limited
Answer: b

Question: A competitive firm in the short run incurs losses. The firm continues production, if
a) P = AVC
b) P > AVC
c) P < AVC
d) P ≥ AVC
Answer: d

Question: Which is an ideal market?
a) Monopolistic Competition
b) Oligopoly
c) Monopoly
d) Perfect Competition
Answer: d

Question: Beyond producer’s equilibrium when MR < MC, the firm earns only
a) Abnormal profit
b) Normal loss
c) Abnormal loss
d) Normal Profit
Answer: c

Question: Firms in a monopolistic market are price
a) Makers
b) Givers
c) Takers
d) Acceptors
Answer: a

Question: The elasticity at a point on a straight-line supply curve passing through the origin making an angle of 45° will be
a) 4.0
b) 2.0
c) 3.0
d) 1.0
Answer: d

Question: Other name by which average revenue curve known
a) Indifference curve
b) Profit curve
c) Average cost curve
d) Demand curve
Answer: d

Question: If all units are sold at same price how will it affect AR and MR?
a) AR > MR
b) AR = MR
c) AR + MR = 0
d) AR < MR
Answer: b

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: What are the conditions for the long run equilibrium of the competitive firm?
a) P = MR
b) LMC = LAC = P
c) SMC = SAC = LMC
d) All of the above
Answer: b

Question: A firm can sell as much as it wants at the market price. The situation is related to
a) Monopoly
b) Monopolistic competition
c) Perfect competition
d) Oligopoly
Answer: c

Question: A producer’s equilibrium is a situation when
a) AR = MR
b) MR = MC
c) AR = AC
d) TR = TC
Answer: b

Question: A rational consumer is a person who
a) Has perfect knowledge of the market
b) Is not influenced by persuasive advertising
c) Behaves at all times, other things being equal, in a judicious manner
d) Knows the prices of goods in different markets and buys the cheapest
Answer: a

Question: The concept of supply curve is relevant only for
a) Monopoly
b) Monopolistic competition
c) Perfect competition
d) Oligopoly
Answer: c

Question: In perfect competition, in the long run, if a new firm enters the industry the supply curve shifts to the right resulting in
a) Reduction in supply
b) No change in price
c) Fall in price
d) Rise in price
Answer: c

Question: Profits of the firm will be more at
a) MR = MC
b) Additional revenue from extra unit equals additional cost
c) Both of above
d) None
Answer: c

Question: Under perfect competition, the cost lies below the average cost curve; the company would
a) Incur losses
b) Make an unusual profit
c) Make normal profits
d) Profit cannot be determined
Answer: a

Question: The condition for producer equilibrium is
a) TR = TVC
b) MC = MR
c) TC = TSC
d) None of this above
Answer: b

Question: When supply curve shifts to the right, there is
a) an increase
b) expansion
c) contraction
d) decrease
Answer: a

Question: If the supply curve is a straight line parallel to the vertical axis (Y-axis), supply of the good is called as
a) Unitary Elastic Supply
b) Perfectly Elastic Supply
c) Perfectly Inelastic Supply
d) Perfectly Elastic Demand
Answer: c

Question: Under which market situation demand curve is linear and parallel to X-axis?
a) Monopoly
b) Perfect competition
c) Oligopoly
d) Monopolistic competition
Answer: b

Question: The supply curve is usually
a) upward rising
b) downward sloping
c) nothing definite can be said
d) None of the above
Answer: a

Question: The claim that other things being equal, the quantity supplied of a good rises when the price of good rises and vice-versa is known as
a) Law of Economics
b) Law of Supply
c) Law of Demand
d) All of these
Answer: b

Question: Globalization has made the Indian market as
a) Buyer Market
b) Seller Market
c) Monopoly Market
d) All of the above
Answer: a

Question: Supply of a commodity is
a) stock
b) flow
c) Both a and b
d) wholesale
Answer: b

Question: When AR = Rs.10 and AC = Rs.8 the firm makes
a) Gross profit
b) Normal profit
c) Net profit
d) Supernormal profit
Answer: d

Question: In perfect competition, when the marginal revenue and marginal cost are equal, profit is
a) Maximum
b) Zero
c) Negative
d) Average
Answer: a

Question: Contraction of supply curve means
a) upward movement along the supply curve
b) downward movement along the supply curve
c) rightward shift in supply curve
d) leftward shift in supply curve
Answer: b

Question: When supply is perfectly inelastic, elasticity of supply is equal to
a) –1
b) zero
c) 1
d) infinity
Answer: b

Question: The functional relationship between supply of a commodity and its various determinants is known as
a) Supply function
b) Change in supply
c) Change in quantity supplied
d) None of the above
Answer: a

Question: Increase or decrease in supply means
a) change in supply due to change in its own price.
b) change in supply due to change in factors other than its own price.
c) Both a and b
d) None of the above
Answer: b

Question: If a firm’s supply increases due to application of improved technology, this is known as
a) Expansion in supply
b) Contraction in supply
c) Increase in supply
d) Increase in quantity supplied
Answer: c

Question: Expansion in supply refers to a situation when the producers are willing to supply a
a) larger quantity of the commodity at an increased price.
b) larger quantity of the commodity due to increased taxation on that commodity.
c) larger quantity of the commodity at the same price.
d) larger quantity of the commodity at the decreased price.
Answer: a

Question: The supply of a commodity implies
a) actual product of a good
b) stock available for sale
c) total existing stock of the good
d) the amount of goods offered for sale at a different prices, per unit of time
Answer: d

Question: Statement I Supply and quantity supplied are one and the same thing.
Statement II Change in supply due to price is called as change in quantity supplied.
Alternatives
a) Statement I is correct and Statement II is incorrect
b) Statement II is correct and Statement I is incorrect
c) Both the statements are correct
d) Both the statements are incorrect
Answer: b

Question: Statement I Supply of precious goods is inelastic in nature.
Statement II Supply curve starting from Y-axis is elastic in nature.
Alternatives
a) Statement I is correct and Statement II is incorrect
b) Statement II is correct and Statement I is incorrect
c) Both the statements are correct
d) Both the statements are incorrect
Answer: c

Question: Elasticity of supply is defined as a measure of the responsiveness of quantity supplied of a good to change in
a) price of concerned good
b) price of substitute good
c) demand
d) None of these
Answer: a

Question: A horizontal supply curve parallel to the quantity axis implies that the elasticity of supply is
a) zero
b) infinite
c) equal to one
d) greater than zero but less than one
Answer: b

Assertion-Reasoning MCQs

a) Both Assertion (a) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (a)
b) Both Assertion (a) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (a)
c) Assertion (a) is true, but Reason (R) is false
d) Both Assertion (a) and Reason (R) are false

Question: Assertion (a) According to law of supply, as the cost of production increases producer increase selling price and accordingly supply of the good increases.
Reason (R) Increase in price of complementary goods, leads to increase in quantity supply.
Answer: d

Question: Assertion (a) Elasticity of supply is higher for flatter curve compared with a steeper supply curve.
Reason (R) Percentage change of quantity is greater than that of change in price on a flatter supply curve.
Answer: a

Question: Assertion (a) Extension in supply is caused by change in factors other than own price. This leads to movement along the supply curve.
Reason (R) Change in quantity supplied is an impact of change in other factors leading to shift in supply curve to the right.
Answer: d

Question: Assertion (a) Supply of agricultural goods is less elastic in nature.
Reason (R) There are many natural constraints in an agricultural produce which restricts its supply.
Answer: a

Question: Assertion (a) Elasticity of supply curve passing through the origin always has elasticity equal to unity regardless of the angle it makes.
Reason (R) Slope of supply curve and elasticity of supply are directly proportional.
Answer: c

Case Based MCQs

Read the following case study and Answer the Questions
A tariff is a tax placed on the products of foreign countries sold in the United States. Assume, there is a 10% tax on foreign-made automobiles. Who would bear the incidence of this tax? Assume that a Japanese car and a similar American car each sell in the United States at a price of $25,000. With the 10% tax on the Japanese car ($2,500), the Japanese company would like to raise the price of its car to $27,500. Whether it can do so or not depends on the price elasticity of demand for Japanese cars. If the demand for Japanese cars is relatively inelastic, the quantity demanded will fall very little at the price of $27,500. This means that buyers do not find Japanese and American cars to be close substitutes.
The incidence of the tax would be on the car buyers. On the other hand, if the demand for Japanese cars is relatively elastic, the quantity of Japanese cars demanded will fall considerably at the price of $27,500. This means that buyers will closely substitute between Japanese and American cars. The Japanese company will have to charge a price close to $25,000 in the United States to be able to compete.
The incidence of the tariff will be on the Japanese automobile companies. In technical language, a tariff on a foreign product that has very elastic demand is called an optimal tariff. The price of the foreign product rises very little in the United States. Most of the tariff is paid by the foreign company as reduced profits. The gain, of course, goes to the United States Government, who collects the money.

Question: What will be the impact on the supply for American cars, if tariff is imposed on Japanese cars with low price elasticity of supply?
a) Increase
b) Decrease
c) Remain constant
d) May or may not increase
Answer: c

Question: With increase in taxes by the government, supply will fall due to ………… .
a) increase in cost of production
b) fall in investments
c) Both a and b
d) Neither a nor b
Answer: a

Question: What be the impact of tariff imposed on supply for Japanese cars?
a) Supply will remain constant
b) Supply will increase
c) Supply will decrease
d) None of these
Answer: c

Question: As per the above information, which of the following has an impact on the supply of the cars?
a) Tariff
b) Consumer’s preferences
c) Elasticity of supply
d) All of the above
Answer: d

Question: Impact of tariff will be higher on supply of cars, if demand is ……… .
a) less elastic
b) more elastic
c) perfectly elastic
d) perfectly inelatic
Answer: a

Question: Assertion (a) A tariff has a lower impact on supply if the good is inelastic.
Reason (R) In case of inelastic supply, quantity doesn’t change much due to change in its determinants.
Alternatives
a) Both Assertion (a) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (a)
b) Both Assertion (a) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (a)
c) Assertion (a) is true, but Reason (R) is false
d) Both Assertion (a) and Reason (R) are false
Answer: a

Read the following case study and Answer the Questions

Year 2020 has seen many ups and downs in terms of production activities and demand in the whole country. Not only India, the entire world has suffered in a big way due to the outbreak of Corona Virus Pandemic. Since, this Pandemic started in November 2019 in China till Present time our trading relation with China has also been affected, not only this due to boarder conflict as well. India is now facing the problem of deflationary gap and heading towards a negative growth rate. Government of India has also announced a relief package to help revive the economic condition of the vulnerable groups. Slowly and gradually impact has been seen on the market as India’s fuel demand is increased during September 2020.

Question: What was the impact of lockdown in India on supply of essential items?
a) Remain constant
b) Increased
c) Decreased
d) Can’t be determined
Answer: b

Question: With increase in supply of essentials goods, its supply curve will ……….. .
a) shift to the right
b) shift to the left
c) move upward
d) move downward
Answer: a

Question: If the fuel prices increase, it will lead to……….in supply of essential goods.
a) increase
b) decrease
c) remain constant
d) Either a or b
Answer: d

Question: Assertion (a) With the announcement of relief packages by the government, supply of essential commodities will further increase.
Reason (R) Essential goods are necessity of life thus given priority by the government.
Alternatives
a) Both Assertion (a) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (a)
b) Both Assertion (a) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (a)
c) Assertion (a) is true, but Reason (R) is false
d) Both Assertion (a) and Reason (R) are false
Answer: b

Question: What will be impact on supply of fuel if demand increase?
a) Increase
b) Decrease
c) Remain constant
d) Depends upon availability of fuel in the international market.
Answer: d

Question: Elasticity of supply of essential commodities are
a) highly inelastic
b) elastic
c) perfectly inelastic
d) perfectly elastic
Answer: a