Managerial Economics Multiple Choice Questions

Sr. Question Answer

1 Which of the following is a characteristic of a perfectly competitive c. Firms can exit and enter the
market? market freely.
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.
2 If a perfectly competitive firm currently produces where price is a. will increase its profits by
greater than marginal cost it producing more.
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.
3 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. a. price is below the minimum of
b. fixed costs exceed variable costs. average variable cost.
c. average fixed costs are rising.
d. marginal cost is above average variable cost.
4 In the long run, a profit-maximizing firm will choose to exit a
market when
a. fixed costs exceed sunk costs. c. revenue from production is less
b. average fixed cost is rising. than total costs.
c. revenue from production is less than total costs.
d. marginal cost exceeds marginal revenue at the current level of
production.
5 When firms have an incentive to exit a competitive market, their exit
will
a. drive down market prices. c. decrease the quantity of goods
b. drive down profits of existing firms in the market. supplied in the market.
c. decrease the quantity of goods supplied in the market.
d. All of the above are correct.
6 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
b. firms are making zero economic profit. profit.
c. firms experience decreasing marginal revenue.
d. price is equal to marginal cost.
7 Equilibrium quantity in markets characterized by oligopoly are
a. lower than in monopoly markets and higher than in perfectly d. higher than in monopoly markets
competitive markets. and lower than in perfectly
b. lower than in monopoly markets and lower than in perfectly competitive markets.
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.
8 In a perfectly competitive industry, a firm can:
(a) Make an economic profit in the short-run but not in the long-run (d) All of the above.
(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.
9 A dominant strategy is one that
(a) beats all others, regardless of the opponent’s choice. (b) beats all others, given the
(b) beats all others, given the opponent’s choice. opponent’s choice.
(c) is beaten by all others, regardless of the opponent’s choice.
(d) is beaten by all others, given the opponent’s choice.
10 What is the advantage to a particular firm of cheating on an
otherwise effective cartel?
(a) The industry can then act like a monopoly. (a) The industry can then act like a
(b) It decreases risk. monopoly.
(c) It enhances credibility.
(d) It pays in the short-run and may pay in the long run.
11 In a model of monopolistic competition in the long run equilibrium
(a) no firms remain in the market. (d) there are no economic profits
(b) new firms will want to enter the market. being made.
(c) all firms must be operating at minimum average cost.
(d) there are no economic profits being made.
12 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. (d) demand for chicken decreases.
(b) demand for barley decreases.
(c) quantity demanded of chicken increases.
(d) demand for chicken decreases.
13 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. d) decreased while the supply of

(b) increased while the supply of stereo systems has increased. stereo systems has decreased.
(c) decreased while the supply of stereo systems has increased.
(d) decreased while the supply of stereo systems has decreased.
14 The cross price elasticity of demand is defined as the
(a) Percentage change in the quantity demanded divided by the (b) Percentage change in the
percentage change in the good’s price. quantity demanded divided by the
(b) Percentage change in the quantity demanded divided by the percentage change in a different
percentage change in a different good’s price. good’s price.
(c) Percentage change in the good’s price divided by the percentage
change in a different good’s price.
(d) Change in the quantity demanded of a good divided by the
change in its price.
15 A profit maximising firm sets its price
(a) to maximise sales. (d) where marginal profit is
(b) so that the demand is elastic. maximised.
(c) to equate average revenue to average cost.
(d) where marginal profit is maximised.
16 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.
17 Oligopoly is a market structure that necessarily has
 (a) cartels (c) A small number of firms, but
(b) a large number of firms with homogeneous products. more than one.
(c) A small number of firms, but more than one.
(d) A large number of firms with slightly different products.
18 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
(b) a positive strategic effect
(c) no strategic effect
(e) no effect on profits at all.
19 If price of substitutes of (X) increases then demand curve of X Shift rightward
will______
20 Pure public goods are subject to the law of decreasing average cost, economies of scale
because of the
21 Features of Long –run market are It is durable goods market , Supply
can be increased or reduced
according to the demand , Sellers at
least recover minimum price for
their goods
22 In case of indivisible goods, which are not priced, the decisions False
regarding their demand preferences are taken through price
mechanism.
23 A monopolist’s product is a unique product. True
24 The indivisible goods whose benefits cannot be priced are called Pure public goods

25 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

26 The profits which must be deducted from the gross profits to arrive Monopoly Profits
at net profits are
27 The products sold by different sellers under pure competition are False
heterogeneous.

28 The goods become ________ only when each individual has an indivisible
access to the entire amount of it and its use by the individual does
not reduce its availability to others.
29 The advantage of cost-benefit analysis are Maximization of social welfare ,
Objective measurement of the
trade-off , Maximization of
difference between total benefits &
total costs

30 The important determinants of supply are Answer Always referred to in

relation to price & time ,
Government policy , Availability of
factors of production
31 If the output rises in the greater proportion than that of the increase increasing returns to scale.
in factor inputs, it is referred to as ________.
32 A fall in price tends the demand for goods to ________ expand
33 Question Perfectly elastic demand curve is ________ Horizontal
34 Methods of measurement of elasticity are Percentage method , Geometric
method , Total outlay method
35 There are no real exceptions to the law of demand False
36 The divisible goods, whose benefits can be priced, are called pure False
public goods.
37 In the measurement of profit, the differences in the concept of profit True
arise due to differences in cost concepts.
38 The act of manufacturing goods and services is called production
39 Price discrimination is possible in perfect competition False
40 Supply is predominantly determined by ________. stock