CA Foundation · Paper 4 · Business Economics

Chapter 4 · Unit 3 · Price Output Determination under Different Market Forms

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Question 01

Perfect competition is characterised by:

single seller and no close substitutes large number of buyers and sellers selling homogeneous product few sellers selling differentiated products only many sellers with strong collusion

Perfect competition has many buyers, many sellers, homogeneous product, free entry and exit, and perfect knowledge.

Question 02

A firm under perfect competition is called a price taker because:

it fixes any price it likes it faces no competition buyers are compelled to pay higher price it cannot influence market price individually

An individual firm under perfect competition is too small to influence market price.

Question 03

Under perfect competition, average revenue is equal to:

price average cost total cost marginal cost only in long run

In perfect competition, AR = MR = Price.

Question 04

Under perfect competition, marginal revenue is:

always less than price always less than average revenue equal to price equal to average cost

A competitive firm sells each additional unit at the same market price, so MR = AR = Price.

Question 05

A perfectly competitive firm reaches equilibrium where:

AR = AC MR = MC and MC cuts MR from below TR is zero MC is minimum

The standard equilibrium condition is MR = MC and MC must be rising, cutting MR from below.

Question 06

In the short run, a competitive firm may continue production even when it incurs loss if price covers:

average cost average fixed cost only marginal cost only average variable cost

In the short run, a firm continues if price is at least equal to AVC, because it can cover variable cost and contribute something toward fixed cost.

Question 07

If price falls below average variable cost in the short run, a competitive firm should:

shut down production expand output set its own higher price merge with buyers

Below AVC, the firm cannot cover variable cost and minimises loss by shutting down.

Question 08

In long-run equilibrium under perfect competition, firms earn:

supernormal profit only losses only normal profit only monopoly profit

Free entry and exit eliminate supernormal profit and losses in long-run perfect competition.

Question 09

Under monopoly there is:

one buyer and many sellers one seller and no close substitute for the product many sellers and differentiated products few sellers with interdependence

Monopoly is characterised by a single seller with strong barriers to entry and no close substitute in the standard textbook sense.

Question 10

A monopolist is called a price maker because:

government fixes the price for him buyers decide the price there is perfect competition he has significant control over price through control of output

A monopolist influences market price because he is the only seller.

Question 11

Under monopoly, the demand curve facing the firm is:

the market demand curve perfectly elastic vertical in all cases the supply curve

Since the monopolist is the only seller, the firm demand curve is the market demand curve.

Question 12

Under monopoly, marginal revenue is generally:

equal to average revenue greater than price less than average revenue equal to average cost

To sell more, a monopolist usually lowers price, so MR lies below AR.

Question 13

A monopolist attains equilibrium where:

AR = AC MR = MC and MC cuts MR from below price = minimum AVC only TR = TC always

The equilibrium condition MR = MC applies under monopoly too.

Question 14

The price charged by a monopolist is determined from:

marginal cost curve alone supply curve only average cost curve only demand curve corresponding to the equilibrium output

The monopolist fixes output where MR = MC, then reads price from the demand curve.

Question 15

Monopolistic competition is characterised by:

many firms selling differentiated products one seller and no substitutes few firms with mutual dependence only homogeneous product and no selling cost

Monopolistic competition combines many firms with product differentiation.

Question 16

An important feature of monopolistic competition is:

absence of product differentiation single seller selling costs like advertisement may exist firms are price takers like perfect competition

Selling costs are common because firms try to distinguish their products.

Question 17

In monopolistic competition, the firm’s demand curve is generally:

perfectly elastic downward sloping vertical horizontal and identical to MR

Because of product differentiation, each firm has some control over price, so its demand curve slopes downward.

Question 18

Oligopoly is a market where the number of sellers is:

one very large none few

Oligopoly means a few firms dominate the market.

Question 19

A major feature of oligopoly is:

interdependence of firms absence of competition single buyer perfectly elastic demand for each firm

Each firm in oligopoly considers rivals’ reactions while making decisions.

Question 20

Which market form is most closely associated with kinked demand curve discussions?

perfect competition monopoly oligopoly monopsony

The kinked demand curve is a standard oligopoly explanation of price rigidity.

Question 21

Under perfect competition, a firm earns supernormal profit in the short run when:

price is less than average cost price is greater than average cost at equilibrium output price is less than AVC MR is zero

If AR (price) exceeds AC at equilibrium output, the firm earns supernormal profit.

Question 22

Under perfect competition, a firm earns normal profit when:

price is below AVC MR is below MC AR is above AC AR is equal to AC at equilibrium output

Normal profit means total revenue covers total cost including normal return to entrepreneur.

Question 23

Under perfect competition, a firm incurs loss in the short run when:

price is less than average cost but not less than average variable cost price is above average cost MR is above MC price equals AC

In that case the firm covers variable cost but not total cost, so it incurs loss and still may continue in short run.

Question 24

Which one of the following is true for monopoly?

AR and MR are equal firm demand curve is horizontal AR slopes downward and MR lies below it price is always equal to marginal cost

That is the standard relationship between AR and MR under monopoly.

Question 25

Free entry and free exit of firms is a feature of:

monopoly only perfect competition and monopolistic competition oligopoly only monopsony only

Free entry and exit are standard features of perfect competition and monopolistic competition.

Question 26

Which market form best fits the example of many toothpaste brands competing through advertising?

perfect competition monopoly pure oligopoly only monopolistic competition

Many brands, product differentiation, and advertising are classic monopolistic competition features.

Question 27

Which market form best fits public utility services in standard textbook examples?

monopoly perfect competition monopolistic competition perfect oligopoly

Traditional textbook examples often treat some public utilities as monopoly or near-monopoly situations.

Question 28

In perfect competition, industry price is determined by:

an individual firm alone government alone industry demand and industry supply average cost of a single seller

Market or industry demand and supply determine price; individual firms only accept it.

Question 29

Under perfect competition, the supply curve of a firm in the short run is the portion of:

average fixed cost curve marginal cost curve above average variable cost average revenue curve above average cost demand curve above total cost

A competitive firm supplies where price equals MC, provided price covers AVC.

Question 30

Which statement is correct?

all firms in all markets are price takers monopoly and perfect competition are identical oligopoly has no interdependence among firms price-output determination differs according to market form

This is the core idea of the unit: equilibrium and pricing behaviour vary across different market forms.

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