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CBSE Questions for Class 11 Commerce Economics The Theory Of The Firm Under Perfect Competition Quiz 2 - MCQExams.com
CBSE
Class 11 Commerce Economics
The Theory Of The Firm Under Perfect Competition
Quiz 2
The industrys' short - period supply curve under Perfect Competition will slope ________________.
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0%
downwards to the right
0%
upwards to the right
0%
horizontal to y axis
0%
parallel to x axis
Explanation
The quantity supplied and the price in the market will always have a positive correlation, as suppliers will be willing to supply higher output levels at higher prices and this will translate into higher revenue. Thus the supply curve slopes upwards to the right.
In perfect competition, the demand curve of the firm is _______________.
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0%
Positively sloped
0%
Negatively sloped
0%
Horizontal
0%
Vertical
The supply curve of the industry (perfect competition) is a _________________.
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0%
Lateral summation of the supply or cost curves of the individual firms
0%
Lateral summation of the average revenue curve of the firm
0%
Lateral summation of the demand curves of the firm
0%
U shaped curve
Explanation
The supply curve
of
industry
, under perfect competition, is lateral summation of that part of short run marginal cost
curves
of the firms which lie above the average variable cost constitutes
the
supply
curve of the industry
.
When the producers are producing homogeneous products, the market will be ________________.
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0%
Monopoly
0%
Oligopoly
0%
Perfect competition
0%
Imperfect competition
Explanation
A production which is the same for every firm in the industry is called a homogeneous product. One farmer’s carrots are indistinguishable from those produced by any other farmer. They are homogeneous.
A market is said to be perfectly competitive when all firms act as price-takers — when they can sell as such as they like at the going price but nothing at a higher price as they sell homogeneous products.
A competitive firm in the long run, earns only __________.
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0%
normal profit
0%
super normal profit
0%
losses
0%
any one of the above
Explanation
Due to free entry and exit in the industry, if the firms in the short run make super normal or subnormal profits this will act as a signal and firms will enter or exit the industry respectively. This will change the supply in the market and thus the price will move back to the point where P = MC and the firm will make normal profits in the long run.
Name the curve which shows the quantity of products a seller wishes to sell at a given price level.
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0%
Demand curve
0%
Cost curve
0%
Supply curve
0%
None of these
Explanation
Supply curve is the curve which shows the quantity of products a seller wishes to sell at a given price level. Supply curve projects different level of goods which can be suppliied by the producers at different levels.
Opportunity cost is a term which describes:
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0%
A bargain price for a factor of production
0%
Cost related to an optimum level of production
0%
Average variable cost
0%
The cost of forgone opportunities
Explanation
Opportunity cost is the forgone benefit that would have been derived by an option not chosen. To properly evaluate opportunity costs, the costs and benefits of every option available must be considered and weighed against the others. Hence, correct answer is option D.
A perfectly competitive market in the short run will be in equilibrium where _______.
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0%
MC $$=$$ AC
0%
MC $$=$$ MR
0%
MC $$=$$ Zero
0%
None of the above
At normal profit, which of the following is not true?
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0%
TR = TC
0%
TR = Explicit costs + opportunity costs
0%
TR=Explicit costs
0%
Profit = 0
Explanation
Normal profit is earned when the firm's economic revenue and economic costs are equal. The economic costs consist of explicit and implicit costs incurred (such as opportunity costs). Firms in competitive markets will earn normal profits in the long run.
In the long run, a firm does not produce if it earns anything less than the _______.
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0%
normal profit
0%
abnormal profit
0%
super normal profit
0%
none of these
Explanation
Normal profit is earned when the firm's economic revenue and economic costs are equal. This is represented by the point P = AC. If the average total cost is not covered by the average revenue (ie they are making a loss) the firm will choose to shut down operations and exit the industry.
Implicit cost is also known as _______________.
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0%
Component cost
0%
Opportunity cost
0%
Book cost
0%
Incremental cost
Explanation
In economics, an
implicit cost
,
also called
an imputed
cost
, implied
cost
, or notional
cost
, is the
opportunity cost
equal to what
a
firm must give up in order to use
a
factor of production for which it already owns and thus does not pay rent. It is the opposite of an
explicit cost
, which is borne directly.
When economists refer to the “
opportunity cost
” of a resource, they mean the value of the next-highest-valued alternative use of that resource. If, for
example
, you spend time
and
money going to a movie, you cannot spend that time at home reading a book,
and
you can't spend the money on something else.
Who has established the relationship between the output of competitive and monopoly firms?
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Marshall
0%
Lionel Robinson
0%
Mrs. Joan Robinson
0%
Pigou
The situation in which total revenue equals total cost, is known as ______.
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0%
monopolistic competition
0%
equilibrium level of output
0%
break-even point
0%
perfect competition
Explanation
When the total revenue and total cost are equal the firm is not incurring any loss at the same time it is not gaining any profit. It is on the no profit no loss position which is the break even point.
Cost-plus pricing is also known as _________.
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0%
Margin pricing
0%
Mark up pricing
0%
Going pricing
0%
Both (A) and (B)
Explanation
When the selling price includes a specific profit margin added to the cost price of each product, in order to secure that profit is earned on each unit sold, it is known as cost-plus pricing.
Assertion (A) : In long run under Perfect Competition, all firms invariably get only normal profit.
Reason (R) : All forms incur minimum average cost and incur no selling cost due to absence of product differentiation.
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0%
Assertion (A) and Reason (R) both are correct
0%
Assertion (A) is correct, but Reason (R) is incorrect
0%
Assertion (A) is incorrect, but Reason (R) is correct
0%
Assertion (A) and Reason (R) both are incorrect
Which of the following is true for perfect competition?
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0%
Large number of buyers and less sellers
0%
Large number of buyers and sellers
0%
Large number of sellers and less buyers
0%
None of these
Explanation
The fundamental condition of perfect competition is that there must be a large number of sellers or firms. Homogeneous Commodity is the second fundamental condition of a perfect market. The products of all firms in the industry are homogeneous and identical
The supply of agricultural products is generally ________.
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0%
elastic
0%
inelastic
0%
perfectly elastic
0%
perfectly inelastic
Explanation
The supply of agricultural products is generally inelastic that means proportionate change in quantity demand is lesser than the proportionate change in price as agricultural products are necessities since it provides basic subsistence to people.
A firm's short-run supply curve under perfect competition is ___________.
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0%
the rising part of the SMC curve from and above the minimum AVC
0%
zero output for all prices strictly less than the minimum AVC
0%
both A and B
0%
none of the above
Explanation
A
firm’s short run supply curve is
the rising part of the SMC curve
from and above the minimum AVC
together with zero output for all
prices strictly less than the
minimum AVC. It can be derived by considering 2 cases- price >= minimum AVC and price < minimum AVC.
In case of short-run equilibrium, a perfectly competitive firm while earning abnormal profits operates at an output level where
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0%
Marginal cost is the minimum
0%
Average cost is the minimum
0%
Both marginal cost and average cost are equal
0%
Marginal cost is higher than average cost
Explanation
In the case of short-run equilibrium, a perfectly competitive firm while earning abnormal profits operates at an output level where MC>AC.
A firm in the short run earns abnormal profits when at the best level of output, the market price exceeds the short-run average total cost.
In the short run, shut down point is ________.
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0%
the point of minimum AVC
0%
the point of minimum AVC where the SMC curve cuts the AVC curve
0%
the point of minimum SAC
0%
the point of minimum SAC where the SMC curve cuts the SAC curve
Explanation
The shutdown condition is given by P $$\le$$ AVC. In the short run firms have at least one fixed factor, these need to be inured irrespective of production, thus if the firm is covering its average variable costs and making some contributions towards its fixed costs, it is profitable to stay in business. If the AVC is not covered then it makes sense to shutdown and limit the losses to the fixed costs.
In the long run, shut down point is ________.
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0%
minimum of LRMC curve
0%
minimum of LRAC curve
0%
minimum of AVC curve
0%
none of the above
Explanation
The shutdown condition is given by P$$\le$$
AC.
In the long run firms have no fixed factors, thus if the firm is not covering its average costs, it is profitable to shutdown the business and exit the industry.
1. All firms in the market produce a certain homogeneous product
2. Each buyer and seller in the market is a price-taker
The above two characteristics define which type of market structure?
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0%
Monopolistic competition
0%
Oligopoly
0%
Perfect competition
0%
Either A or C
A perfectly competitive market has two defining features. Which are these features?
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All firms in the market produce a certain homogeneous good
0%
There are only a few sellers
0%
Each buyer and seller in the market is a price-taker
0%
Both A and C are correct.
The profit level that is just enough to cover the explicit costs and opportunity costs of the firm is called the _______
Report Question
0%
super normal profit
0%
abnormal profit
0%
normal profit
0%
none of these
Explanation
Normal profit is earned when the firm's economic revenue and economic costs are equal. The economic costs consist of explicit and implicit costs incurred (such as opportunity costs). Firms in competitive markets will earn normal profits in the long run.
A firms long-run supply curve is _________.
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0%
the rising part of the LRMC curve from and above the minimum LRAC
0%
zero output for all prices less than the minimum LRAC
0%
the rising part of the SMC curve from and above the minimum AVC
0%
all of the above
___________ of a firm shows the levels of output (plotted on the x-axis) that the firm chooses to produce corresponding to different values of the market price (plotted on the y-axis).
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0%
Demand Curve
0%
Output Curve
0%
Supply Curve
0%
Both B and C
Explanation
The supply curve depicts the quantities that the suppliers are willing and able to sell at various prices during a particular period of time. It graphically shows the relationship between supply price and quantity. At higher prices the suppliers are willing to supply a higher quantity as it will generate a higher profit thus the curve is upwards sloping in nature.
In a perfect competition, Price line shows _____.
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0%
the market price is independent of a firms output
0%
a firm can sell as many units of the good as it wants to sell at market price
0%
either A or B
0%
both A and B
The vertical supply curve represents ___________ elasticity.
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0%
infinite
0%
zero
0%
less
0%
one
An increase in supply means selling a ___________ amount at the same price.
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0%
larger
0%
smaller
0%
same
0%
nil
In case of perishable goods the supply is _________.
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0%
elastic
0%
inelastic
0%
infinity
0%
greater than one
Explanation
Perishable goods are goods having a short span of life. Some of the examples are vegetables, fruits, newspaper, medicines etc.
Elasticity refers to the measure of changes in supply due to changes in price.
In case of perishable goods since these have limited useful life therefore the supply is inelastic i.e. changes in prices does not affect the supply of goods.
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