Managerial Economics Multiple Choice Questions Sr. 1 Question Which of the following is a characteristic of a perfectly competitive market? a.

Firms are price setters. b. There are few sellers in the market. c. Firms can exit and enter the market freely. d. All of the above are correct. If a perfectly competitive firm currently produces where price is greater than marginal cost it a. will increase its profits by producing more. b. will increase its profits by producing less. c. is making positive economic profits. d. is making negative economic profits. When a perfectly competitive firm makes a decision to shut down, it is most likely that a. price is below the minimum of average variable cost. b. fixed costs exceed variable costs. c. average fixed costs are rising. d. marginal cost is above average variable cost. In the long run, a profit-maximizing firm will choose to exit a market when a. fixed costs exceed sunk costs. b. average fixed cost is rising. c. revenue from production is less than total costs. d. marginal cost exceeds marginal revenue at the current level of production. When firms have an incentive to exit a competitive market, their exit will a. drive down market prices. b. drive down profits of existing firms in the market. c. decrease the quantity of goods supplied in the market. d. All of the above are correct. In a perfectly competitive market, the process of entry or exit ends when a. firms are operating with excess capacity. b. firms are making zero economic profit. c. firms experience decreasing marginal revenue. d. price is equal to marginal cost. Equilibrium quantity in markets characterized by oligopoly are a. lower than in monopoly markets and higher than in perfectly competitive markets. b. lower than in monopoly markets and lower than in perfectly competitive markets. c. higher than in monopoly markets and higher than in perfectly competitive markets. d. higher than in monopoly markets and lower than in perfectly competitive markets. In a perfectly competitive industry, a firm can: (a) Make an economic profit in the short-run but not in the long-run (b) Make an economic loss in the short-run but not in the long-run (c) Make an accounting profit, but not an economic profit, in the long-run Answer c. Firms can exit and enter the market freely.

a. will increase its profits by producing more.

a. price is below the minimum of average variable cost.

c. revenue from production is less than total costs.

c. decrease the quantity of goods supplied in the market.

b. firms are making zero economic profit.

d. higher than in monopoly markets and lower than in perfectly competitive markets.

(d) All of the above.

(d) All of the above. 9 A dominant strategy is one that (a) beats all others, regardless of the opponents choice. (b) beats all others, given the opponents choice. (c) is beaten by all others, regardless of the opponents choice. (d) is beaten by all others, given the opponents choice. What is the advantage to a particular firm of cheating on an otherwise effective cartel? (a) The industry can then act like a monopoly. (b) It decreases risk. (c) It enhances credibility. (d) It pays in the short-run and may pay in the long run. In a model of monopolistic competition in the long run equilibrium (a) no firms remain in the market. (b) new firms will want to enter the market. (c) all firms must be operating at minimum average cost. (d) there are no economic profits being made. Con Agra has introduced a lean mixture of barley and ground beef which is indistinguishable from ground beef but has about the same amount of fat as chicken. As a result, the (a) demand for chicken increases. (b) demand for barley decreases. (c) quantity demanded of chicken increases. (d) demand for chicken decreases. The price of stereo systems has fallen while the quantity purchased has remained constant. This implies that the demand for stereo systems has (a) increased. (b) increased while the supply of stereo systems has increased. (c) decreased while the supply of stereo systems has increased. (d) decreased while the supply of stereo systems has decreased. The cross price elasticity of demand is defined as the (a) Percentage change in the quantity demanded divided by the percentage change in the goods price. (b) Percentage change in the quantity demanded divided by the percentage change in a different goods price. (c) Percentage change in the goods price divided by the percentage change in a different goods price. (d) Change in the quantity demanded of a good divided by the change in its price. A profit maximising firm sets its price (a) to maximise sales. (b) so that the demand is elastic. (c) to equate average revenue to average cost. (d) where marginal profit is maximised. When average total cost is at its minimum (a) average variable cost is declining with increases in output. (b) Average total cost is equal to average variable cost. (c) Marginal cost is less than average total cost. (d) Marginal cost is greater than average total cost. Oligopoly is a market structure that necessarily has (b) beats all others, given the opponents choice.

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(a) The industry can then act like a monopoly.

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(d) there are no economic profits being made.

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(d) demand for chicken decreases.

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d) decreased while the supply of stereo systems has decreased.

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(b) Percentage change in the quantity demanded divided by the percentage change in a different goods price.

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(d) where marginal profit is maximised.

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(a) cartels (b) a large number of firms with homogeneous products. (c) A small number of firms, but more than one. (d) A large number of firms with slightly different products. Your firm is in a duopoly. When you drop your price, your rival is likely to follow. If you agree to wage rises for your employees, this is likely to have: (a) a negative strategic effect (b) a positive strategic effect (c) no strategic effect (e) no effect on profits at all. If price of substitutes of (X) increases then demand curve of X will______ Pure public goods are subject to the law of decreasing average cost, because of the Features of Long run market are

(c) A small number of firms, but more than one.

(b) a positive strategic effect

Shift rightward economies of scale It is durable goods market , Supply can be increased or reduced according to the demand , Sellers at least recover minimum price for their goods False True Pure public goods It is a wave like movement , These fluctuations are recurrent in nature , Expansion and contraction in trade cycle are cumulative in effect Monopoly Profits False indivisible Maximization of social welfare , Objective measurement of the trade-off , Maximization of difference between total benefits & total costs Answer Always referred to in relation to price & time , Government policy , Availability of factors of production increasing returns to scale. expand Horizontal

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In case of indivisible goods, which are not priced, the decisions regarding their demand preferences are taken through price mechanism. A monopolists product is a unique product. The indivisible goods whose benefits cannot be priced are called The features of business or trade cycle are

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The profits which must be deducted from the gross profits to arrive at net profits are The products sold by different sellers under pure competition are heterogeneous. The goods become ________ only when each individual has an access to the entire amount of it and its use by the individual does not reduce its availability to others. The advantage of cost-benefit analysis are

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The important determinants of supply are

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If the output rises in the greater proportion than that of the increase in factor inputs, it is referred to as ________. A fall in price tends the demand for goods to ________ Question Perfectly elastic demand curve is ________

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Methods of measurement of elasticity are There are no real exceptions to the law of demand The divisible goods, whose benefits can be priced, are called pure public goods. In the measurement of profit, the differences in the concept of profit arise due to differences in cost concepts. The act of manufacturing goods and services is called Price discrimination is possible in perfect competition Supply is predominantly determined by ________.

Percentage method , Geometric method , Total outlay method False False True production False stock