Chapter 4 – The Theory of Firm Under Perfect Competition
Question 1
The condition for producer equilibrium is
1. TR=TVC
2. MC=MR
3. TC=TSC
4. None of this above
Answer: MC=MR
Question 2
What is the condition for the long-run equilibrium of the competitive firm?
1. P=MR
2. LMC=LAC=P
3. SMC=SAC=LMC
4. All of the above
Answer: LMC=LAC=P
Question 3
Globalization has made the Indian market as?
1. Buyer Market
2. Seller Market
3. Monopoly Market
4. All of the above
Answer: Buyer Market
Question 4
What is the break-even price?
Answer: The break-even price is the cost at which a company earns a normal profit
(Price=AC). In the long run, the break-even price can be described as P=AR=MC.
Question 5
When AR=Rs.10 and AC=Rs. 8, the firm makes?
1. Gross Profit
2. Normal Profit
3. Net Profit
4. Supernormal Profit
Answer: Supernormal Profit
Question 6
What features of the monopolistic competition are monopolistic in nature?
Answer: The features of the monopolistic competition that are monopolistic in nature
are mentioned below.
• Product Differentiation
• Price Control
• The decrease in the demand curve
Question 7
Define perfect competition.
Answer:
Perfect competition is a market where a large number of buyers and sellers, sells a
similar product in the same price
Question 8
What is a Monopoly in economics?
Answer: Monopoly is a condition where only one seller dominates the whole market
space and has control over the price of a product
Question 9
Which is an ideal market?
1. Monopolistic Competition
2. Oligopoly
3. Monopoly
4. Perfect Competition
Answer: Perfect Competition
Question 10
In which market the demand curve is linear and parallel to X-axis?
1. Monopoly
2. Perfect Competition
3. Oligopoly
4. Mono [polistic Competition
Answer: Perfect Competition
Question 11
What is Oligopoly?
Answer: Oligopoly refers to a market structure where a few large sellers sell the same
or different product.
Question 12
What is the shape of the marginal revenue curve under monopoly?
Answer: The shape of the marginal revenue curve under monopoly slopes downwards
from left to right and it lies below the average revenue curve.
Question 13
Explain the implication of free entry and free exit of a firm in the perfect competition
market.
Answer: The implication of free entry and free exit of a firm in the perfect competition
market is that in this market structure no company earn an unusual profit. Each
company just earns a normal profit.
Question 14
What is product differentiation?
Answer: Product differentiation means the substitute produced by different
manufacturers to show their product are different from other product available in the
market. The product differentiation can be in colour, shape, brand name, packaging, etc.
Question 15
Under perfect competition, the cost lies below the average cost curve, the company
would
1. Incur losses
2. Make an unusual profit
3. Make normal profits
4. Profit cannot be determined
Answer: Incur losses