Managerial Economics Multiple Choice Questions

Sr.

Question

Answer

c. Firms can exit and enter the

market freely.

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

d. higher than in monopoly markets

and lower than in perfectly
competitive markets.

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

(d) All of the above.

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) All of the above.

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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

(b) beats all others, given the

opponents choice.

(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

(d) there are no economic profits

being made.

d) decreased while the supply of

stereo systems has decreased.

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(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

(b) Percentage change in the

quantity demanded divided by the
percentage change in a different
goods price.

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(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

(d) where marginal profit is

maximised.

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(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

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(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

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(a) The industry can then act like a

monopoly.

(d) demand for chicken decreases.

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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

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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.

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The indivisible goods whose benefits cannot be priced are called

Pure public goods

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The features of business or trade cycle are

It is a wave like movement , These

fluctuations are recurrent in nature ,
Expansion and contraction in trade
cycle are cumulative in effect

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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.

Monopoly Profits

indivisible

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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

Answer Always referred to in

relation to price & time ,
Government policy , Availability of
factors of production
increasing returns to scale.

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True

False

Maximization of social welfare ,

Objective measurement of the
trade-off , Maximization of
difference between total benefits &
total costs

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

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Horizontal
Question Perfectly elastic demand curve is ________

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Methods of measurement of elasticity are
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Percentage method , Geometric

method , Total outlay method
False

There are no real exceptions to the law of demand

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False
The divisible goods, whose benefits can be priced, are called pure
public goods.

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True
In the measurement of profit, the differences in the concept of profit
arise due to differences in cost concepts.

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production
The act of manufacturing goods and services is called

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False
Price discrimination is possible in perfect competition

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stock
Supply is predominantly determined by ________.