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B.COM (4thSEMESTER)

MICROECONOMICS - II

COMPLETE
MCQ. NOTES

MARKS - 40

SANDIP KUMAR

NOTE: ANSWER IS UNDERLINE

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CHAPTER – 1. MONOPOLY

1 – marks
1
1. The relation 𝑀𝑅 = 𝑃 (1 − ) if e > 1, then :
𝑒

(a) MR > 0 (b) MR <0 (c) MR = 0 (d) None

2. Profits of the firm will be more at:

(a) MR = MC
(b) Additional revenue from extra unit equals its additional cost
(c) Both of above
(d) None

3. What should firm do when Marginal revenue is greater than marginal cost?
(a) Firm should expand output
(b) Effect to be made to make them equal
(c) Prices should be covered down
(d) All of these

4. Firms in a monopolistic market are price..........:

(a) Takers (b) Givers (c) Makers (d) Acceptors

5. Monopolist can determine :

(a) Price (b) Output (c) Both of above (d) None

6. MR of nth unit is given by:

TRn
(a) TR (b) TRn + TR(n - 1) (c) TRn - TR(n - 1) (d) All of these
(n−1)

1
7. Given the relation 𝑀𝑅 = 𝑃 (1 − ) if e > 1, then :
𝑒
(a) MR < 0 (b) MR > 0 (c) MR = 0 (d) None of these

8. Given, AR = 5 and Elasticity of demand = 2 Find MR.

(a) + 2.5 (b) - 2.5 (c) + 1.5 (d) + 2.0

9. If a seller obtains ₹3,000 after selling 50 units and ₹3,100 after selling 52
units, then marginal revenue will be:
(a) ₹59.62 (b) ₹50.00 (c) ₹60.00 (d)₹ 59.80

10. Which one of the following expressions is correct for Marginal Revenue?
𝑒
(a) 𝑀𝑅 = 𝑃 (1 − ) (b) MR = TRn - TR(n + 1)
𝑒

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∆TR TR
(c) MR = (d) MR =
∆Q Q

11. For maximum profit, the condition is:

(a) AR = MC (b) MR = MC (c) MR = AR (d) MC = AC

12. In the long run:

(a) Only demand can change (b) Only supply can change
(c) Both demand and supply can change (d) None of these

13. Condition for producer equilibrium is :

(a) TR = TVC (b) MC = MR (c) TC = TSC (d) None of these

14. When the price of a commodity is ₹20, the quantity demanded is 9 units
and when its price is ₹19, the Quantity demanded is 10 units. Based on this
Information what will be the marginal revenue resulting from an increase in
output from 9 units to 10 units?
(a) ₹20 (b) ₹19 (c) ₹10 (d) ₹01

15. From the following table, what will be equilibrium market price?
Price (in ₹) 1 2 3 4 5 6 7 8
Demand 500 450 400 350 300 250 200 150
(Tons p.a.)
Supply 200 250 300 350 400 450 500 550
(Tons p.a.)
(a) ₹2 (b) ₹3 (c) ₹4 (d) ₹5

16. A monopolist is able to maximize his profits when :

(a) His output is maximum (b) He charges a high price
(c) His average cost is maximum (d) His MC is equal to MR

17. For a monopolist, the necessary condition for equilibrium is :

(a) P = MC (b) P = MR = AR (c) MR = MC (d) None

18. The demand curve of the firm and industry will be same in which form of
market:
(a) Monopolist Competition (b) Perfect Competition
(c) Monopoly (d) Oligopoly

19. Price discrimination can take place only in .......... .

(a) Monopolistic Competition (b) Oligopoly
(c) Perfect Competition (d) Monopoly

20. When elasticity of demand is Equal to one in monopoly, marginal Revenue

will be........ .
(a) Equal to one. (b) Greater than one. (c) Less than one. (d) Zero

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21. Which one of the following statement is Incorrect?

(a) Competitive firms are price takers and not price makers.
(b) Price discrimination is possible in monopoly
(c) Duopoly may lead to monopoly.
(d) Competitive firm always seeks to discriminate prices.

22. Monopolist can fix price of goods whose elasticity is........

(a) Less than 1 (b) More than 1 (c) Elastic (d) Inelastic

23. "Price Discrimination" can be best exercised by the Seller in ……….. .

(a) Oligopoly (b) Monopoly
(c) Monopolistic competition (d) Perfect competition

24. In market, the price and output equilibrium is determined on the basis of:
(a) Total revenue and total cost (b) Total cost and marginal cost
(c) Marginal revenue and marginal cost (d) Only marginal cost

25. A monopolist can fix :

(a) Both price and output (b) Either price or output
(c) Neither price or output (d) None of the above

26. Abnormal profits exist in the long run only under ........ .
(a) Perfect Competition (b) Monopoly
(c) Monopolistic Competition (d) Oligopoly

27. The distinction between a single firm and an Industry in which of the
following market conditions?
(a) Perfect Competition (b) Imperfect Competition
(c) Pure Competition (d) Monopoly

28. Price discrimination will not be profitable if the elasticity of demand is .........
in different markets.
(a) Uniform (b) Different (c) Less (d) Zero

29. The firm will attain equilibrium at a point where MC curve cuts........ from
below.
(a) AR Curve (b) MR Curve (c) AC Curve (d) AVC Curve

30. In a monopoly market, a producer has

control only over:
(a) Price of the commodity (b) Demand of the commodity
(c) Both (a) and (b) (d) Utility of the product

31. A discriminating monopolist will charge a higher price in the market in

which the demand for its product is
(a) highly elastic (b) relatively elastic

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(c) relatively inelastic (d) perfectly elastic

32. If a firm under monopoly wants to sell more, its average revenue curve will
be a ……… line.
(a) horizontal (b) vertical
(c) downward sloping (d) upward sloping

33. Which is the first order condition for the firm to maximize the profit.
(a) AC = MR (b) AC = AR (c) MC = MR (d) MR = AR

34. Average revenue curve is also known as:

(a) Profit Curve (b) Demand Curve
(c) Average Cost Curve (d) Indifference Curve

35. Which is not characteristic of monopoly?

(a) The firm is price taker
(b) There is a single firm
(c) The firm produces a unique product
(d) The existence of some advertising

36. Price discrimination is profitable only when:

(a) Different markets are kept separate
(b) Distance between the consumer and the market is more
(c) Elasticity of demand in different markets is different
(d) The consumers are segregated on the basis of their purpose of use of the
commodity.

37. Which amongst the following is not an objective of price discrimination?

(a) To hold the extra stocks (b) To earn maximum profits
(c) To enjoy economies of scale (d) To secure equity through pricing

38. Which of the following statement is not correct?

(a) Under monopoly there is no difference between a firm and industry
(b) A monopolist may restrict the output and raise the price
(c) Commodities offered for sale under a perfect competition will be
heterogeneous
(d) Product differentiation is peculiar to monopolistic competition

39. Which of the following is not a characteristic of a monopoly?

(a) There is a single firm
(b) The firm is a price-taker
(c) The firm produces a unique product
(d) The existence of some advertising expenses

40. Electricity supply service is an example of ……………

(a) pure competition (b) monopolistic competition

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(c) monopoly (d) oligopoly

41. Railways is an example of ……….. .

(a) monopoly (b) perfect competition
(c) monopolistic competition (d) oligopoly

42. Marginal Revenue is equal to ……. .

(a) the change in price plus the change in output
(b) the change in quantity divided by the change in price
(c) the change in P x Q due to a one unit change in output
(d) price, but only if the firm is a price researcher

43. All of the following are characteristic of a monopoly except................

(a) there is a single firm (b) the firm is a price taker
(c) the firm produces a unique product (d) the existence of some
advertising

44. A monopolist is able to maximise his profits when…………… .

(a) his output is maximum (b) he charge a high price
(c) his average cost is minimum (d) his MC is equal to MR

45. In which form of the market structure is the degree of control over the price
of its product by a firm very large?
(a) Monopoly (b) Imperfect Competition
(c) Oligopoly (d) Perfect competition

46. Which is the other name that is given to the average revenue curve?
(a) Profit curve (b) Demand curve (c) Average cost curve (d) Indifference
curve

47. Price discrimination will be profitable only if the elasticity of demand in

different market has been divided is............
(a) uniform (b) different (c) less (d) zero

48. A monopolist is the price.......

(a) maker (b) taker (c) adjuster (d) none of the above

49. Price discrimination is one of the features of…………

(a) monopolistic competition (b) monopoly
(c) perfect competition (d) oligopoly

50. Under monopoly, degree of control over price is ......

(a) none (b) some (c) very considerable (d) none of the above

51. Generally, market for perishable like butter, vegetables, etc., will have
.............

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(a) regional market (b) local market

(c) national market (d) none of the above

52. When the monopolist divides the consumers into separate sub-markets and
charges different prices in different sub-markets it is known as.........
(a) first degree of price discrimination
(b) second degree of price discrimination
(c) third degree of price discrimination
(d) none of the above.

53. Under .................. the monopolist will fix a price which will take away the
entire consumers' surplus.
(a) second degree of price discrimination
(b) first degree of price discrimination
(c) third degree of price discrimination
(d) none of the above

54. Price discrimination is related to.............

(a) time (b) size of the purchase (c) income (d) any of the above

55. The firm and the industry are one and the same in...............
(a) perfect competition (b) monopolistic competition
(c) duopoly (d) monopoly

2 – Marks
1. Under monopoly price discrimination depends upon:
(a) Elasticity of demand for commodity
(b) Elasticity of supply or commodity
(c) Size of market
(d) All of above

2. For a discriminating monopolist the condition for equilibrium is:

(a) MR > MC (b) MR1 = MR2
(c) MRa = MRb = MC (d) All of the above

3. Equilibrium price may be determined through:

(a) Only demand (b) Only supply
(c) Both demand & supply (d) None

4. If price is forced to stay below equilibrium price:

(a) Excess supply exists (b) Excess demand exists
(c) Either (a) or (b) (d) Neither (a) nor (b)

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5. An increase in supply with unchanged demand leads to:

(a) Rise in price and fall in quantity (b) Fall in both price and quantity
(c) Rise in both price and quantity (d) Fall in price and rise in quantity

6. An increase in supply with demand remaining the same, brings about.

(a) An increase in equilibrium quantity and decrease in equilibrium price.
(b) An increase in equilibrium price and decrease in equilibrium quantity.
(c) Decrease in both equilibrium price and quantity.
(d) None of these

7. If the price of a commodity is fixed, then with every increase in its sold
quantity the total revenue will........ and the marginal revenue will.......
(a) increase, also increase (b) increase, remain unchanged
(c) increase, decline (d) remain fixed, increase.

8. Supernormal profits occur, when :

(a) Total revenue is equal to total cost
(b) Total revenue is equal to variable cost
(c) Average revenue is more than average cost
(d) Average revenue is equal to average cost

9. The MR curve cuts the horizontal line between Y axis and demand curve into:
(a) Two unequal parts (b) Two equal parts
(c) May be equal or unequal parts (d) None of these

10. ……… is the price at which demand for a commodity is equal to its supply:
(a) Normal Price (b) Equilibrium Price (c) Short run Price (d) Secular Price

11. Price Discrimination is possible only when:

(a) Seller is alone (b) Goods are homogeneous
(c) Market is controlled by the government (d) None of the above

12. The price discrimination under monopoly will be possible under which of
the following conditions?
(a) The seller has no control over the supply of his product.
(b) The market has the same condition all over.
(c) The price elasticity of demand is different in different markets.
(d) The price elasticity of demand is uniform.

13. Under monopoly, which of the following is correct:

(a) AR and MR both are downward sloping
(b) MR lies halfway between AR and Y-axis
(c) MR can be zero or even negative
(d) All of the above

14. In the long run a monopolist always earns

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(a) Normal profit (b) Abnormal profit (c) Zero profit (d) Loss

15. Under which of the following forms of market structure does a firm has a
very considerable control over the price of its product?
(a) Monopoly (b) Monopolistic Competition
(c) Oligopoly (d) Perfect Competition

16. For price discrimination to be successful the elasticity of demand for the
commodity in the two markets should be:
(a) Same (b) Different (c) Constant (d) Zero

17. Price discrimination will be profitable only if the elasticity of demand in

different markets is
(a) Uniform (b) Different (c) Less (d) Zero

18. Comparing a Monopoly and Competitive firm the Monopolist will:

(a) Produce less at a lower price (b) Produce more at a lower price
(c) Produce less at a higher price (d) Produce zero at a lower price

19. Discriminating monopoly implies that the monopolist charges different

prices for his commodity…….. .
(a) from different groups of consumers (b) for different uses
(c) at different places (d) any of the above

20. A monopolist is able to maximize his profits when........

(a) his output is maximum (b) he charges a low price
(c) his total cost is minimum (d) his marginal cost is equal to the
marginal revenue

21. In the above figure, curve E is the firm's

(a) Marginal Cost Curve (b) Average Cost Curve
(c) Demand Curve (d) Marginal revenue Curve

22. Above figure represents a

(a) Monopolist (b) Perfectly competition industry
(c) Perfectly competitive firm (d) None of the above

23. In above figure, firms marginal revenue curve is curve

(a) E (b) A (c) F (d) B

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CHAPTER – 2 .IMPERFECT COMPETITION

1 – Marks

1. Which of the following is not the feature of an imperfect competition?

(a) Product differentiation (b) Few sellers
(c) Homogeneous products (d) Price wars

2. Under Monopolistic competition the cross elasticity of demand for the

product of a single firm would be:
(a) Infinite (b) Highly elastic (c) Highly inelastic (d) Zero

3. When AR = 10 and AC = 8 the firm makes ………… .

(a) Normal profit (b) Net profit
(c) Gross profit (d) Supernormal profit

4. Which market have characteristic of product differentiation?

(a) Perfect Competition (b) Monopoly
(c) Monopolistic Competition (d) Oligopoly

5. Tooth paste industry is an example of ....

(a) Monopoly (b) Monopolistic competition
(c) Oligopoly (d) Perfect competition

6. Monopolistic Competitive firms ………. .

(a) Are small in size (b) Have small share in total market
(c) Are very large in size (d) Both (A) and (B)

7. In monopolistic competition capacity in the firm........ .

(a) Always Exists (b) Sometimes Exists
(c) Never Exists (d) None of the above

8. Non-price competition is very popular in :

(a) Monopoly market (b) Monopolistic competition.
(c) Oligopoly market (d) Perfect competition

9. Selling outlay is an essential part of which of the following market situations?

(a) Perfect Competition (b) Monopoly
(c) Monopolistic Competition (d) Pure Competition

10. "I am making a loss, but with the rent I have to pay, I can't afford to shut
down at this point of time." If this entrepreneur is attempting to maximize
profits or minimize losses.
(a) Rational, if the firm is covering its variable cost

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(b) Rational, if the firm is covering its fixed cost

(c) Irrational, since plant closing is necessary to eliminate losses
(d) Irrational, since fixed cost are eliminated if a firm shut down

11. Under which market condition, though the firms earn normal profits in the
long run, there is always excess capacity with them?
(a) Perfect competition (b) Monopolistic competition
(c) Oligopoly (d) Monopoly

12. Monopolistic competition differs from perfect competition primarily

because –
(a) in monopolistic competition, the firms can differentiate their products
(b) in perfect competition, the firms cannot differentiate their products
(c) in monopolistic competition, entry and exist into the industry is blocked
(d) in monopolistic competition, there are many barriers to entry.

13. In the below table, what will be equilibrium market price ……… .
Price (in ₹) 1 2 3 4 5 6 7 8
Demand 1,000 900 800 700 600 500 400 300
(Tons p.a.)
Supply 400 500 600 700 800 900 1,000 1,100
(Tons p.a.)
(a) ₹6 (b) ₹8 (c) ₹4 (d) ₹1

14. Assume that when price is ₹20, quantity demanded is 9 units, and when
price is 19, quantity demanded is 10 units, Based on this information, what is
the marginal revenue resulting from an increase in output from 9 units to 10
units?
(a) ₹30 (b) ₹9 (c) ₹10 (d) ₹1

15. Assume that when price is ₹20, quantity demanded is 15 units, and when
price is 18, quantity demanded is 16 units. Based on this information, what is
the marginal revenue resulting from an increase in output from 15 units to 16
units?
(a) ₹18 (b) ₹16 (c) ₹12 (d) ₹28

16. Suppose, a monopolistic firm is producing a level of output such that MR >
MC. What should be firm do to maximize its profits?
(a) The firm should do nothing (b) The firm should hire more labour
(c) The firm should fixed price (d) The firm should increase output

17. Suppose that a monopolistic firm is earning total revenues of 1,00,000 and
is incurring explicit costs of 75,000. If the owner could work for another
company for 30,000 a year, we would conclude that.............
(a) the firm is incurring an economic loss
(b) implicit costs are ₹25,000
(c) the total economic costs are ₹1,00,000

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(d) the individual is earning an economic profit of ₹25,000

18. Which is the first order condition for the monopolistic firm, profit is to be
maximum
(a) AC = AR (b) MC = MR (c) MR = AR (d) AC = MC

19. Which of the following statements is false?

(a) Economic costs include the opportunity costs of the resources owned by the
firm
(b) Accounting costs include only explicit costs
(c) Economic profit will always be less than accounting profit if resources
owned and used by the firm have any opportunity costs
(d) Accounting profit is greater than equal to total revenue less implicit costs

20. With a given supply curve, a decrease in demand causes...........

(a) an overall decrease in price but an increase in equilibrium quantity
(b) an overall increase in price but a decrease in equilibrium quantity
(c) an overall decrease in price and a decrease in equilibrium quantity
(d) no change in overall price but a reduction in equilibrium quantity

21. It is assumed in economic theory that.......

(a) decision making within the firm is generally undertaken by managers, but
never by the owners
(b) the ultimate goal of the firm is to maximise profits, regardless of firm size or
type of business organization
(c) as the firs size increases, so do its goals
(d) the basic decision making unit of any firm is its owners

22. Suppose that the supply of cameras increases due to an increase in foreign
imports. Which of the following will most likely occur?
(a) The equilibrium price of cameras will constant
(b) The equilibrium quantity of cameras exchanged will decrease
(c) The equilibrium price of camera film will decrease
(d) The equilibrium quantity of camera film exchanged will increase

23. Assume that in the market for good Z there is a simultaneous increase in
demand and
the quantity supplied. The result will be....
(a) an increase in equilibrium price and quantity
(b) a decrease in equilibrium price and quantity
(c) an increase in equilibrium quantity and uncertain effect on equilibrium price
(d) a decrease in equilibrium price and increase in equilibrium quantity

24. Suppose the technology for producing personal computers improves, and
at the same time, individuals discover new uses for personal computers, so that

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there is greater utilisation of personal computers. Which of the following will

happen to equilibrium price and equilibrium quantity?
(a) Price will increase; quantity cannot be determined
(b) Price will decrease; quantity cannot be determined
(c) Quantity will increase; price cannot be determined
(d) Quantity will decrease; price cannot be determined

25. Which of the following is not a characteristic of monopolistic competition?

(a) Ease of entry into the industry (b) Product differentiation
(c) A relatively large number of sellers (d) A homogeneous product

26. Monopolistic competition differs from perfect competition primarily

because
(a) in monopolistic competition, firms can differentiate their products
(b) in perfect competition, firms can differentiate their products
(c) in monopolistic competition, entry into the industry is blocked
(d) in monopolistic competition, there are relatively few barriers to entry

27. The long-run equilibrium outcomes in monopolistic competition and perfect

competition are similar, because in both market structures.......
(a) the efficient output level will be produced in the long run
(b) firms will be producing at minimum average cost
(c) firms will only earn a normal profit
(d) firms realise all economies of scale

28. A firm encounters its "shutdown point" when …….. .

(a) average total cost equals price at the profit maximizing level of output
(b) average variable cost equals price at the profit maximizing level of output
(c) average fixed cost equals price at the profit maximizing level of output
(d) marginal cost equals price at the profit - maximizing level of output

29. The structure of the toothpaste industry in India is best described as …….. .
(a) perfectly competitive (b) monopolistic
(c) monopolistically competitive (d) oglipolistic

30. A market structure in which many firms sell products that are similar but
not identical is known as ………. .
(a) monopolistic competition (b) monopoly
(c) perfect competition (d) oligopoly

31. Which of the following is not a characteristic of monopolistically a

competitive market?
(a) Free entry and exit (b) Abnormal profits in the long run
(c) Many sellers (d) Differentiated products

32. In a very short period, market ...............

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(a) the supply is fixed (b) the demand is fixed

(c) demand and supply are fixed (d) none of the above

33. Time element was conceived by

(a) Adam Smith (b) Alfred Marshall (c) Pigou (d) Lionel Robinson

34. Total Revenue =

(a) Price x Quantity (b) Price Income
(c) Income x Quantity (d) none of the above

35. Average revenue is the revenue earned .......

(a) per unit of input (b) per unit of output
(c) same units of input (d) same units of output

36. AR can be symbolically written as ...........

(a) MR/Q (b) Price x Quantity (c) TR/Q (d) none of the above

37. AR is also known as ...............

(a) price (b) income (c) revenue (d) none of the above

38. Marginal revenue can be defined as the change in total revenue resulting
from the
(a) purchase of an additional unit of a commodity
(b) sales of an additional unit of a commodity
(c) sale of subsequent units of a product
(d) none of the above

39. When e> 1 then MR is ……. .

(a) zero (b) negative (c) positive (d) one

40. When e = 1 then MR is.................

(a) positive (b) zero (c) one (d) negative

41. When e < 1 then MR is.............

(a) negative (b) zero (c) positive (d) one

42. The term market refers to a.......

(a) place where buyer and seller bargain a product or service for a price
(b) place where buyer does not bargain
(c) place where seller does not bargain
(d) none of the above

43. Durable goods and industrial items exist in ………. .

(a) local market (b) regional market
(c) national market (d) secular market

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44. Secular period is also known as..............

(a) very short period (b) short period
(c) very long period (d) long period

45. Stock market is the example for........

(a) unregulated market (b) regulated market
(c) spot market (d) none of the above

46. The market for the ultimate consumers is known as .............

(a) whole sale market (b) regulated market
(c) unregulated market (d) retail market

47. If the average cost is higher than the average revenue, then the firms
incurs.....
(a) normal profit (b) abnormal profit
(c) normal loss (d) abnormal loss

48. Market which have two firms are known as:

(a) Oligopoly (b) Duopoly (c) Monopoly (d) Oligopsony

49. The market structure in which the number of sellers is small and there is
inter dependence in decision making by the firms is known as:
(a) Perfect competition (b) Oligopoly
(c) Monopoly (d) Monopolistic competition

50. OPEC is an example of:

(a) Pure competition (b) Monopoly (c) Oligopoly (d) Duopoly

51. Oligopoly having identical products is :

(a) Pure oligopoly (b) Imperfect oligopoly
(c) Price leadership (d) Collusion

52. Price rigidity is a situation found in which of the following market forms?
(a) Perfect competition (b) Monopoly
(c) Monopolistic competition (d) Oligopoly

53. Oligopoly having identical products is known as ......

(a) Pure oligopoly (b) Collusive oligopoly
(c) Independent oligopoly (d) None of these

54. Which of these is the best example of oligopoly?

(a) OPEC (b) SAARC (c) WTO (d) GATT

55. ......... is that situation in which a firm bases its market policy, in part on the
expected behaviour of a few close rivals.
(a) Oligopoly (b) Monopolistic Competition

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(c) Monopoly (d) Perfect Competition

56. Under oligopoly, there are ............ seller(s).

(a) many (b) only one (c) few (d) only two

57. Oligopolistic industries are characterized by

(a) many large firms and no barriers to entry
(b) a few dominant firms and substantial barriers to entry
(c) a large number of small firms and no barriers to entry
(d) one dominant firm and no barriers to entry

58. Air travel service industry is an example of…….. .

(a) perfect competition (b) oligopoly
(c) monopolistic competition (d) monopoly

59. Oligopolistic industries are characterized by :

(a) a few dominant firms and substantial barriers to entry
(b) a few large firms and no entry barriers
(c) a large number of small firms and no entry barriers
(d) one dominant firm and low entry barriers

60. In the context of oligopoly, the kinked demand hypothesis is designed to

explain
(a) price and output determination (b) price rigidity
(c) price leadership (d) collusion among rivals

2 – Marks
1. What are the conditions for the long run equilibrium of the monopolistic
competitive firm?
(a) LMC = LAC = P (b) SMC = SAC = LMC
(c) P = MR (d) All of these

2. In the long-run monopolistic can:

(a) Incur losses (b) Must earn super normal profits
(c) Wants to shut-down (d) Earns only normal profits

3. A firm encounters "shut down" point when.......

(a) Marginal cost Equals the price of the profit maximizing level of out put
(b) Average fixed cost Equals the price at the profit maximizing level of out put
(c) Average variable cost Equals the price at the profit maximizing level of
output
(d) Average Total cost equals the price at the profit maximizing level of out put

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4. Under which market Condition firms make only normal profits in the long
run?
(a) Oligopoly (b) Monopoly
(c) Monopolistic competition (d) Duopoly

5. Selling costs have to be incurred in case of:

(a) Perfect Competition (b) Monopolistic Competition
(c) Monopoly (d) None of these

6. In a competitive market, if price exceeds Average Variable Cost (AVC) but

remains less than Average Cost (AC) at the equilibrium, the firm is:
(a) Making a profit
(b) Planning to quit
(c) Experience loss but should continue production
(d) Experience loss but should discontinue production

7. Which market has the concept of 'group’ equilibrium in the long run?
(a) Oligopoly (b) Monopoly
(c) Monopolistic competition (d) Perfect competition

8. Which of the following is not a characteristic of a monopolistic competition?

(a) Ease of entry into the industry (b) Product differentiation
(c) A homogenous product (d) A relatively large number of sellers

9. Under monopolistic competition in the long run, what will a firm earn?
(a) Supernormal profits (b) Normal profits
(c) Break even (d) Abnormal profits

10. Suppose that at the profit-maximizing level of output, a firm finds that
market price is less than average total cost, but greater than average variable
cost. Which of the following statements is correct?
(a) The firm should shutdown in order to minimise its losses
(b) The firm should raise its price enough to cover its losses
(c) The firm should move its resources to another industry
(d) The firm should continue to operate in the short run in order to minimize its
losses.

11. When price is less than average variable cost at the profit-maximizing level
of output, a firm should
(a) produce where marginal revenue equals marginal cost if it is operating in
the short run
(b) produce where marginal revenue equals marginal cost if it is operating in
the long run
(c) shutdown since it will loss nothing in that case
(d) shutdown since it cannot even cover its variable costs if it stays in business

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12. Assume that consumers' incomes and the number of sellers in the market
for good A both decrease. Based upon this information, we can conclude with
certainty that equilibrium................
(a) price will increase (b) price will constant
(c) quantity will increase (d) quantity will decrease

13. The sale of branded articles is common in a situation of...................

(a) excess capacity (b) monopolistic competition
(c) monopoly (d) pure competition.

14. The demand curve of oligopoly is:

(a) Horizontal (b) Vertical (c) Kinked (d) Rising left to right

15. In oligopoly, the kink on the demand curve is more due to ....
(a) Discontinuity in MR.
(b) Discontinuity in AR.
(c) Fulfilment of the assumption that a price cut is followed by others and a
price increase by a firm is not followed by others.
(d) Price war amongst the firms.

16. In Oligopoly the kink in the demand curve is more due to

(a) Discontinuity in MR
(b) Discontinuity in AR
(c) Fulfilment of assumption that a price fall is followed by the other and a price
increase by a firm is not followed by the other
(d) Price war among the firms

17. Which of the following is not a feature of oligopoly market?

(a) Interdependence of the firms in decision making
(b) Price rigidity
(c) Group behaviour
(d) Existence of large number of firms

18. The demand curve of an oligopolist is :

(a) Determinate (b) Indeterminate
(c) Circular (d) Vertical

19. When the industry is dominated by one large firm which is considered as
the leader of the group, the market is described as:
(a) Open oligopoly (b) Perfect oligopoly
(c) Full oligopoly (d) Organised oligopoly

20. Which of the following is not a characteristic of an oligopolistic industry?

(a) Price leadership
(b) Too much important to non-price industry
(c) Horizontal demand curve

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(d) A small number of firms in the industry

21. The reason for the kinked demand curve is that:

(a) the oligopolist believe that competitors will follow output increases but not
output reductions.
(b) the oligopolist believe that competitors will follow price but not output
reductions.
(c) the oligopolist believe that competitors will follow price cuts but not price
rises.
(d) the oligopolist believe that competitors will follow price increases but not
output increases

22. Kinked demand curve is observed in .......

(a) Duopoly market (b) Monopoly market
(c) Competitive market (d) Oligopoly market
23. The Kinked demand curve model explains the market situation
(a) Pure Oligopoly (b) Differentiated Oligopoly
(c) Collusive Oligopoly (d) Price Rigidity

24. The kinked demand curve model of oligopoly assumes that

(a) the response to a price increase is less than the response to a price decrease
(b) the response to a price increase is equal to the response to a price decrease
(c) the elasticity of demand is constant regardless of whether the price
increases or decreases
(d) the demand is perfectly elastic if the price increases and perfectly inelastic if
the price decreases

25. Kinked demand curve model explains.......

(a) price fluctuations (b) price rigidity
(c) supernormal price (d) price and output determination

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CHAPTER – 3 .FACTOR PRICE DETERMINATION

1 – Marks
1. The theory of factor pricing is applicable to:
(a) All factors of production (b) Only Rent
(c) Few factors of production (d) None

2. The marginal productivity theory of distribution is developed by:

(a) Amartya Sen (b) Adam Smith (c) J. B. Clark (d) Alfred Marshall

3. The marginal productivity theory of

distribution is developed at the end of the:
(a) 16th century (b) 19th century
(c) 18th century (d) 20th century

4. The marginal productivity theory of distribution assumes the perfect

competition in:
(a) both product and factor markets (b) only product market
(c) only factor market (d) None

5. The marginal productivity theory of distribution assumes that both the price
of the product and the price of the factor remain :
(a) unchanged (b) changed (c) stable (d) None

6. The marginal productivity theory of distribution assumes the possibility of ....

of different factors:
(a) no substitution (b) no free substitution
(c) substitution (d) no easy substitution

7. The marginal productivity theory of distribution assumes ....... employment

for factors.
(a) full (b) quarter (c) half (d) double

8. The marginal physical product (MPP) of a factor, is the........ in the total

product of the firm as additional workers are employed by it.
(a) constant (b) decrease (c) fixed (d) increase

9. VMP is the ............ the MPP of a factor by the price of the product:
(a) subtraction (b) multiplication (c) division (d) addition

10. Under perfect competition VMP of the factor is ......... MRP of that factor :
(a) less than (b) equal to (c) more than (d) less than equal to

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11. The marginal productivity theory of distribution is applicable in perfect

competition only. The statement is :
(a) False (b) True (c) Partly true (d) Partly false

12. The marginal productivity theory of distribution emphasis on :

(a) Supply side (b) Both demand and supply side
(c) Demand side (d) none

13. The marginal productivity theory of wage states that the wage rate is
determined according to the:
(a) marginal revenue of labour (b) marginal product of labour
(c) marginal cost of labour (d) marginal product of other factors

14. When marginal product of labour is expressed in money terms we obtain:

(a) VMPL (b) MRPL (c) MPPL (d) None

15. The change in total revenue following a change in the employment of

labour is:
(a) VMPL (b) MRPL (c) MPPL (d) None

16. Marginal productivity theory of wage states that wage of labour equals:
(a) VMPL > MRPL (b) VMPL = MRPL
(c) VMPL < MRPL (d) None

17. In Marginal Productivity Theory of Wage:

(a) Any one can influence the wage rate
(b) Any group one can influence the wage rate
(c) no one can influence the wage rate
(d) employer can influence the wage rate

18. In Marginal Productivity Theory of Wage:

(a) Law of variable proportions operates
(b) Law of fixed proportions operates
(c) Law of demand operates
(d) Law of supply operates

19. In Marginal Productivity Theory of Wage:

(a) All labourers are homogeneous and are divisible
(b) All factors are homogeneous only
(c) All labourers are divisible only
(d) All labourers are indivisible

20. In Marginal Productivity Theory of Wage:

(a) Resources are fully employed
(b) Resources are partly employed
(c) Resources are not employed

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(d) Resources are over employed

21. In Marginal Productivity Theory of Wage:

(a) Resources are fully employed
(b) Resources are partly employed
(c) Resources are not employed
(d) Resources are over employed

22. In Marginal Productivity Theory of Wage:

(a) Number of factors other than labour remains changed
(b) Number of factors other than labour remains unchanged
(c) All factors remains unchanged
(d) All factors will changed

23. In Marginal Productivity Theory, wages represent:

(a) average cost (b) marginal cost
(c) opportunity cost (d) sunk cost

24. When VMP or MRP of labour is greater than wages then the firm can earn
(a) more profits by employing an additional labour
(b) fixed profits
(c) less profits by employing an additional labour
(d) No profits

25. The elasticity of demand for labour depends on the elasticity of:
(a) supply for its output (b) supply for its price
(c) demand for its output (d) demand for its price

26. Demand for labour will be ..... if their wages form only a small proportion of
the total wages.
(a) elastic (b) inelastic
(c) zero elasticity (d) unit elasticity
27. The demand for labour will be elastic if the demand for the commodity it
produces:
(a) is elastic or cheaper substitutes are available
(b) inelastic
(c) is elastic
(d) has cheaper substitutes

28. Under imperfect competition, labour demand is governed by:

(a) VMP (b) MRP (c) both VMP and MRP (d) none

29. Supply curve of labour for an industry rises:

(b) vertical (a) downwards (c) horizontal (d) upwards

30. Substitution effect of the rise in:

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(a) real wage (b) money wage

(c) both real and money wage (d) none

31. Substitution effect induces the individual to work

(a) less hours to earn more income
(b) more hours to earn less income
(c) more hours to earn more income
(d) less hours to earn less income

32. If the wage rate is less than the average revenue product, the firms would
be earning :
(a) normal profits (b) supernormal profits
(c) losses (d) No profit no loss

33. If the wage rate is above the average revenue product, the firms would be
earning:
(a) normal profit (b) supernormal profits
(c) losses (d) No profit no loss

34. In case of monopsony, there is only one buyer of a factor of production,

which is:
(a) capital (b) land (c) labour (d) No factors of production

35. In case of monopsony, the wage rate and number of employees is …….
compared to perfect competition.
(a) high (b) low (c) equal (d) higher or equal

36. Collective bargaining is the process of negotiating

(a) wages (b) rent (c) interest (d) profit

37. The income derived from the ownership of land and other free gifts of
nature is commonly called :
(a) wages (b) rent (c) interest (d) profit

38. Economic rent is an element that enters into the incomes of:
(a) wages (b) all factors
(c) few factors (d) profit

39. One of the assumptions of Ricardian Theory of Rent is that land has:
(a) no alternative use except farming
(b) many alternative uses
(c) no use
(d) no use at all

40. The Ricardian Theory the existence of

(a) imperfect competition (b) perfect competition

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(c) monopolistic competition (d) no competition

2 – Marks
1. The marginal productivity theory of distribution explanations:
(a) how the demand of a factor of production is determined
(b) how the supply of a factor of production is determined
(c) how the output of a factor of production is determined
(d) how the price of a factor of production is determined

2. The marginal productivity theory of distribution suggests some principles

regarding the distribution of the among the ......... factors of production.
(a) International Income, Four (b) National Income, Four
(c) Regional Income, Four (d) National Income, Two

3. According to the marginal productivity theory of distribution, the price (or

the earnings) of a factor tends to equal the :
(a) Output of its marginal product (b) Value of its marginal cost
(c) Value of its marginal product (d) Value of its marginal revenue

4. distribution assumes that the marginal product of a factor would ..... as

additional units of the factor are employed while keeping other factors
constant.
(a) increase (b) constant (c) diminish (d) None

5. In the marginal productivity theory of distribution all the units of a factor are
assumed to be...... and .......
(a) indivisible, homogeneous (b) divisible, heterogeneous
(c) indivisible, heterogeneous (d) divisible, homogeneous

6. Maximising profit can be achieved by employing each factor up to that level

at which the price of each is ........... the value of its .........
(a) less than, marginal product (b) equal to marginal product
(c) more than marginal cost (d) less than equal to marginal revenue

7. Exhaustion of the total product leaving neither a ..... nor a ........ at the end.
(a) profit and gain (b) surplus and deficit
(c) income and expenditure (d) receipt and payment

8. MRP is the...... to the total ..... when more and more units of a factor are
added to the fixed amount of other factors:
(a) addition, revenue (b) addition, cost
(c) subtraction, revenue (d) multiplication, cost

9. The marginal product of land or labour cannot be separately determined

because:
(a) main product is produced by all the factors only

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(b) main product is not a joint product produced by all the factors jointly
(c) main product is a joint product produced by all the factors jointly
(d) no main product is produced by all the factors jointly

10. In Marginal Productivity Theory of Wage:

(a) Labour is mobile and is not substitutable to capital and other inputs
(b) Labour is mobile and is substitutable to other inputs except capital
(c) Labour is mobile and is substitutable to capital and other inputs
(d) Labour is fixed and is substitutable to capital only

11. The labour demand curve in monopoly satisfied the condition:

(a) W = MRPL = VMPL (b) W = MRPL > VMPL
(c) W = MRPL > VMPL (d) W> MRPL < VMPL

12. Income effect of the rise in wage rate which tends to ........ number of work
hours leisure and
(a) reduce, increase (b) increase, reduce
(c) increase, fixed (d) reduce, increase

13. backward sloping supply curve of labour indicates that the number of hours
worked per week ....... as the wage rate.......
(a) rises, fixed (b) rises, decreases
(c) decreases, fixed (d) decreases, rises

14. Quasi Rent is the difference between:

(a) Total Revenue and Total Variable Costs
(b) Revenue and Fixed Costs
(c) Total Variable Costs and Total Revenue
(d) Variable and Fixed Costs

15. One of the assumptions of Ricardian Theory of Rent is that law of applied in
agriculture :
(a) increasing return (b) constant return
(c) diminishing return (d) no return

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