CHAPTER 4 - PRICE DETERMINATION IN

DIFFERENT MARKET
1. In the table below what will be equilibrium market price?

Price (`) Demand (tonnes Supply (tonnes per annum)

per annum)
1 1000 400
2 900 500
3 800 600
4 700 700
5 600 800
6 500 900
7 400 1000
8 300 1100
(a) ` 2 (b) ` 3
(c) ` 4 (d) ` 5
2. Assume that when price is ` 20, the quantity demanded is 9 units, and when price is ` 19, the
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) ` 20 (b) ` 19
(c) ` 10 (d) `1
3. Marginal Revenue is equal to:
(a) The change in price divided by 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 searcher.
4. Suppose that a sole proprietorship 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.
(d) The individual is earning an economic profit of ` 25,000
5. Which is the first order condition for the profit of a firm to be maximum?
(a) AC = MR (b) MC = MR
(c) MR = AR (d) AC = AR
6. Which of the following is not a characteristic of a “price-taker”?
(a) TR = P x Q
(b) AR = Price
(c) Negatively – sloped demand curve
(d) Marginal Revenue = Price
7. It is assumed in economic theory that
(a) decision making within the firm is usually 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
organisation.
(c) as the firm’s size increases, so do its goals.
(d) the basic decision making unit of any firm is its owners.
8. 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 the equilibrium:
(a) price will increase. (b) price will decrease.
(c) quantity will increase. (d) quantity will decrease.
9. Suppose the technology for producing personal computers improves and, at the same time,
individuals discover new uses for personal computers so that 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.
10. Which of the following is not a condition of perfect competition?
(a) A large number of firms.
(b) Perfect mobility of factors.
(c) Informative advertising to ensure that consumers have good information.
(d) Freedom of entry and exit into and out of the market.
11. Monopoly may arise in a product market because
(a) A significantly important resource for the production of the commodity is owned by a single firm.
(b) The government has given the firm patent right to produce the commodity.
(c) The costs of production and economies of scale makes production by a single producer more
efficient.
(d) All the above.
12. 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.
13. 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.
14. 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.
15. Average revenue curve is also known as:
(a) Profit Curve (b) Demand Curve
(c) Average Cost Curve (d) Indifference Curve
16. Under which of the following forms of market structure does a firm have no control over the
price of its product?
(a) Monopoly (b) Monopolistic competition
(c) Oligopoly (d) Perfect competition
17. 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.
18. The firm in a perfectly competitive market is a price-taker. This designation as a price- taker is
based on the assumption that -
(a) the firm has some, but not complete, control over its product price.
(b) there are so many buyers and sellers in the market that any individual firm cannot affect the
market.
(c) each firm produces a homogeneous product.
(d) there is easy entry into or exit from the market place.
19. The kinked demand curve model of oligopoly assumes that
(a) the response (of consumers) to a price increase is less than the response to a price decrease.
(b) the response (of consumers) to a price increase is more than the response to a price decrease.
(c) the elasticity of demand is constant regardless of whether price increases or decreases.
(d) the elasticity of demand is perfectly elastic if price increases and perfectly inelastic if price
decreases.
20. 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
21. A purely competitive firm’s supply schedule in the short run is determined by
(a) its average revenue.
(b) its marginal revenue.
(c) its marginal utility for money curve.
(d) its marginal cost curve.
22. One characteristic not typical of oligopolistic industry is
(a) horizontal demand curve.
(b) too much importance to non-price competition.
(c) price leadership.
(d) a small number of firms in the industry.
23. Which of the following statements is incorrect?
(a) Even a monopolistic firm can have losses.
(b) Firms in a perfectly competitive market are price takers.
(c) It is always beneficial for a firm in a perfectly competitive market to discriminate prices.
(d) Kinked demand curve is related to an oligopolistic market.
24. Under perfect competition, in the long run,there will be no _______ .
(a) normal profits (b) supernormal profits.
(c) Production (d) costs.
25. When _____, there will be allocative efficiency meaning thereby that the cost of the last unit is
exactly equal to the price consumers are willing to pay for it and so that the right goods are being
sold to the right people at the right price.
(a) MC = MR (b) MC = AC
(c) MC = AR (d) AR = MR
26. Agricultural goods markets depict characteristics close to
(a) perfect competition. (b) oligopoly.
(c) monopoly. (d) monopolistic competition.
27. Which of the following statements is accurate regarding a perfectly competitive firm?
(a) Demand curve is downward sloping
(b) The demand curve always lies above the marginal revenue curve
(c) Average revenue need not be equal to price
(d) Price is given and is determined by the equilibrium in the entire market
28. The market for hand tools (such ashammers and screwdrivers) is dominated by Draper, Stanley,
and Craftsman. This market is best described as
(a) Monopolistically competitive (b) a monopoly
(b) an oligopoly (d) perfectly competitive
29. In the long-run equilibrium of a competitive market, firms operate at
(a) the intersection of the marginal cost and marginal revenue
(b) their efficient scale
(c) zero economic profit
(d) all of these answers are correct
30. Which of the following is not a characteristic of a monopolistically competitive market?
(a) Free entry and exit
(b) Abnormal profits in the long run
(c) Many sellers
(d) Differentiated products
31. Total revenue =
(a) price × quantity (b) price × income
(c) income × quantity (d) none of the above
32. Average revenue is the revenue earned
(a) per unit of input
(b) per unit of output
(c) different units of input
(d) different units of output
33. 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
34. When e > 1 then MR is
(a) Zero (b) Negative
(c) Positive (d) one
35. In Economics, 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
36. Under perfect competition a firm is the
(a) price-maker and not price-taker
(b) price-taker and not price-maker
(c) neither price-maker nor price-taker
(d) none of the above
37. Under monopoly, the degree of control over price is:
(a) None (b) Some
(c) very considerable (d) none of the above
38. Generally, perishable goods like butter, eggs, milk, vegetables etc., will have
(a) regional market (b) local market
(c) national market (d) none of the above
39. Stock exchange market is an example of
(a) unregulated market (b) regulated market
(c) spot market (d) none of the above
40. The market for the ultimate consumers is known as
(a) whole sale market (b) regulated market
(c) unregulated market (d) retail market
41. In oligopoly, when the industry is dominated by one large firm which is considered as leader of
the group, Then it is called:
(a) full oligopoly (b) collusive oligopoly
(c) partial oligopoly (d) syndicated oligopoly
42. When the products are sold through a centralized body, oligopoly is known as
(a) organized oligopoly (b) partial oligopoly
(c) competitive oligopoly (d) syndicated oligopoly
43. Price discrimination is related to
(a) Time (b) size of the purchase
(c) Income (d) any of the above
44. The firm and the industry are one and the same in_
(a) Perfect competition (b) Monopolistic competition
(c) Duopoly (d) Monopoly
45. Which of the following statements is correct?
(a) Price rigidity is an important feature of monopoly.
(b) Selling costs are possible under perfect competition.
(c) Under perfect competition factors of production do not move freely as there are legal
restrictions.
(d) An industry consists of many firms.
46. Which of the following statements is incorrect?
(a) Under monopoly there is no difference between a firm and an industry.
(b) A monopolist may restrict the output and raise the price.
(c) Commodities offered for sale under aperfect competition will be heterogeneous.
(d) Product differentiation is peculiar to monopolistic competition.
47. Average revenue is equal to.
(a) The change in P & Q due to a one unit change in output.
(b) Nothing but price of one unit of output.
(c) The change in quantity divided by change in price.
(d) Graphically it denotes the firm’s supply curve.
48. Example of a commodity said to have an International Market.
(a) Perishable Goods.
(b) High Value and Small Bulk Commodities.
(c) Product whose trading is restricted by government.
(d) Bulky Articles.
49. Natural Monopoly arises when
(a) There is enormous goodwill enjoyed by a firm.
(b) There are stringent legal and regulatory requirement.
(c) There are very large Economies of Scale.
(d) There are Business Combinations and Cartels.
50. Price Discrimination cannot persist under the following market form:
(a) Perfect Competition (b) Monopoly
(c) Monopolistic (d) Oligopoly
51. The First Order Condition for the Profit of a firm to be maximum?
(a) AC = MR (b) MC = MR
(c) MR = AR (d) AC = AR
52. In economics, generally the classification of the markets is made on the basisof:
(a) Time (b) Geographic area
(c) Both (a) and (b) (d) None of these
53. Under Monopoly, selling costs are incurred for:
(a) Persuading customers for not buying competitor’s product
(b) Informative purpose
(c) Promoting sales of the product
(d) None of these
54. Which of the following is incorrect formula?
(a) TC = AC × Q (b) ∑ MC = TC
(c) ∑ MC = TVC (d) ∑ MC + TFC = TC
55. The kinked demand curve theory explains that even when the demandconditions ___the
price___
(a) Change, changes (b) Change, remains stable
(c) Remain stable, changes (d) Remain stable, falls
56. A firm reaches a break-even point (normal profit position) where,
(a) Marginal revenue curve cuts the horizontal axis.
(b) Marginal cost curve intersects the average variable cost curve.
(c) Total revenue equals total variable cost.
(d) Total revenue and total cost are equal.
57. Firms cooperate with each other in determining price or output or both.It is afeature of:
(a) Pure Oligopoly (b) Non-Collusive Oligopoly
(c) Imperfect Oligopoly (d) Collusive Oligopoly
58. Which of the following is not an essential condition of pure competition?
(a) large number of buyers and sellers
(b) homogeneous product
(c) freedom of entry
(d) absence of transport cost
59. In both the Chamberlin and kinked demand curve models, the oligopolists
(a) recognize their independence
(b) do not collude
(c) tend to keep prices constant
(d) all the above
60. The degree of monopoly power is measured in terms of difference between:
(a) Marginal cost and the price
(b) Average cost and average revenue
(c) Marginal cost and average cost
(d) Marginal revenue and average cost
61. The MC curve cuts the AVC and ATC curves:
(a) at different points
(b) at the falling parts of each curve
(c) at their respective minimas
(d) at the rising parts of each curve
62. Under monopoly condition, the firm is able to sell more units of output _____.
(a) at the same price (b) at higher price
(c) at constant price (d) at constant price
63. Under monopoly condition, the firm is able to sell more units ofoutput
(a) at the same price (b) at higher price
(c) at constant price (d) at lower price
64. “A firm can earn only normal profits in long the run.” It is an implication offollowing
feature.
(a) Large number of buyers & sellers.
(b) Free entry and exit
(c) Availability of substitutes
(d) Full or partial control over price
65. Which of the following is true of an imperfect market structure?
(a) Participants in the market have little or no control over outcome in themarket.
(b) Consumer surplus is maximized.
(c) The maximization of producer surplus may lead to a loss of net benefitfor society.
(d) Imperfect market structures include monopolies but not cartels.
66. Marginal revenue of a firm is constant throughout under:
(a) Perfect Competition
(b) Monopolistic Competition
(c) Oligopoly
(d) All the above
67. Monopolistic competition constitutes:
(a) Single firm producing close substitutes
(b) Many firms producing close substitutes
(c) Many firms producing differentiated substitutes
(d) Few firms producing differentiated substitutes
68. ‘Interdependence Between Firms’ is a feature of which type of market form:
(a) Oligopoly (b) Monopolistic Competition
(c) Monopoly (d) Perfect Competition
69. 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 minimum
(d) his marginal cost is equal to marginal revenue
70. Agricultural goods markets depict characteristics close to:
(a) Perfect competition (b) Oligopoly
(b) Monopoly (d) Monopolistic competition
71. Price discrimination will be profitable only if the elasticity of demand indifferent markets in
which the total market has been divided is:
(a) Uniform (b) different
(c) Less (d) Zero
72. Price discrimination will be profitable only if the elasticity of demand indifferent markets in
which the total market has been divided is:
(a) Uniform (b) different
(c) Less (d) Zero
73. Price Rigidity explained by Sweezy’s model is related to which market form:
(a) Monopoly
(b) Oligopoly
(c) Monopolistic competition
(d) Perfect Competition
74. Consumers get maximum variety of goods under:
(a) Perfect Competition
(b) Monopolistic Competition
(c) Monopoly
(d) None of these
75. In economics, generally the classification of the markets is made on the basisof:
(a) Time (b) Geographic area
(c) Volume of business (d) All of these
76. If the monopolist incurs losses in the short run, then in the long run:
(a) the monopolist will go out of business
(b) the monopolist will stay in business
(c) the monopolist will break even
(d) any of the above
77. In monopolistic competition, we have:
(a) few firms selling a differentiated product
(b) many firms selling a homogeneous product
(c) few firms selling a homogeneous product
(d) many firms selling a differentiated product
78. In both the Chamberlin and the kinked demand curve models, the oligopolists:
(a) recognize their interdependence
(b) do not collude
(c) tend to keep prices constant
(d) all the above.
79. Who gave the theory of price discrimination?
(a) Marshall (b) Pigou
(c) Cournot (d) Simon
80. Demand curve under Oligopoly is:
(a) Less elastic (b) Perfectly elastic
(c) Highly elastic (d) Indeterminate
81. A few Big sellers is a Characteristics of:
(a) Perfect Competition
(b) Monopolistic Competition
(c) Oligopoly
(d) None of the above
82. Dynamic fare charged by Indian railways is an example of:
(a) Pure Monopoly (b)Discriminating Monopoly
(c) Perfect Competition (d) None of these
83. The Firm and Industry are same in:
(a) Duopoly (b) Monopoly
(c) Oligopoly (d) None of these
84. If increasing air fares increases revenues and decreasing them decreasesrevenues, then
the demand for air travel has a price elasticity of:
(a) 0 (b) > 0 but < 1
(c) 1 (d) > 1
85. In Oligopoly the firms may collude in order to:
(a) Increase Competition
(b) Prisoner dilemma for buyers
(c) To raise the price of the good they offer
(d) None of these
86. Secular Period is also known as:
(a) long period (b) Short period
(c) Very long period (d) None of these
87. An Industry comprised of a very large number of sellers producing astandardized product is
known as:
(a) Pure competition (b) Pure monopoly
(c) Monopolistic competition (d) None of these
88. Kinked demand was propounded by?
(a) Paup K. Sweezy (b) Marshall
(c) Adam Smith (d) None of these.
89. Characteristic of Oligopoly market is ----
(a) Strategic Independence
(b) Importance of Advertising and selling costs
(c) Group Behaviour
(d) All of above
90. When output increases from 10 units to 12 units and TR increases from 300to 330 then MR
will be:
(a) 30 (b) 20
(c) 15 (d) None of these.
91. Huge selling costs are incurred in which form of market?
(a) Monopolistic competition
(b) Perfect competition
(c) Monopoly
(d) None of these
92. Price discrimination is a situation when a producer:
(a) Charge same price
(b) Charges may prices
(c) Charges different prices in different market
(d) None of these.
93. Which type of market structure does not typically have a negatively slopedmarket demand
curve?
(a) Monopoly
(b) Perfect competition
(c) Oligopoly
(d) All of the above typically have negatively sloped market demand curves.
94. The restaurant industry has a market structure that comes closest to:
(a) monopolistic competition. (b) oligopoly.
(c) perfect competition. (d) monopoly.
95. Which of the following markets comes close to satisfying the assumptions ofa perfectly
competitive market structure?
(a) The stock market
(b) The market for agricultural commodities such as wheat or corn
(c) The market for petroleum and natural gas
(d) All of the above come close to satisfying the assumptions of perfectcompetition.
96. Which of the following industries is most likely to be monopolisticallycompetitive?
(a) The automobile industry
(b) The steel industry
(c) The car repair industry
(d) The electrical generating industry
97. Some economists have suggested that oligopolists tend to maintain stable prices when there
are changes in the demand for their products or in their costs of production. Which of the
following models provides an explanationfor this type of behavior?
(a) Price leadership (b) Centralized cartel
(c) Prisoners' dilemma (d) Kinked demand curve
98. Which of the following is a FALSE statement?
(a) the very long run focuses on the growth of productive capacity
(b) in the very long run, the productive capacity is assumed to be given
(c) in the very short run, shifts in aggregate demand determine how muchoutput is produced
(d) fluctuations in the rates of inflation and unemployment are importantlong-run issues
99. A seller cannot influence the market price under:
(a) Perfect Competition (b) Monopoly
(c) Monopolistic Competition (d) All of the above
100. Railways is an example of:
(a) Perfect Competition (b) Monopolistic Competition
(c) Monopoly (d) Oligopoly
Solution :-

1 2 3 4 5 6 7 8 9 10
C C C A B C B D C C

11 12 13 14 15 16 17 18 19 20

D A A C B D B B B B

21 22 23 24 25 26 27 28 29 30

D A C B C A D C D B

31 32 33 34 35 36 37 38 39 40

A B B C A B C B B D

41 42 43 44 45 46 47 48 49 50

C D D D D C B B C A

51 52 53 54 55 56 57 58 59 60

B D B B B D D D D A

61 62 63 64 65 66 67 68 69 70

C D D B A A C A D A

71 72 73 74 75 76 77 78 79 80

B B B B D D D D B D

81 82 83 84 85 86 87 88 89 90

C B B B C C A A D C

91 92 93 94 95 96 97 98 99 100

A C D A D C D D A C