Free Non-Competitive Markets 01 Practice Test - 11th Grade - Commerce 

Question 1

Which of the following assumptions about a perfectly competitive market structure is/are not valid in the case of a monopoly?

A.

There should exist a very large number of firms so that the actions of a single buyer or seller have a negligible effect

B.

Free entry and exit

C.

Outputs produced by all the firms are indistinguishable from each other

D.

 The consumers and firms have perfect knowledge of the output, inputs and their prices

SOLUTION

Solution : A and B

In a perfectively competitive market structure, firms are price takers. For this, there should be a large number of sellers as well as free entry and exit.

Question 2

Which of the following market structure arises when the products are differentiated as opposed to perfect substitutes?

A.

Monopoly

B.

Oligopoly

C.

Perfect competition

D.

Monopolistic competition

SOLUTION

Solution : D

When products are differentiated and not perfect substitutes of each other, it results in a market structure called as monopolistic competition.

Question 3

A ___ is a structure in which only one seller provides a good or service that has no close substitutes.

SOLUTION

Solution :

A monopoly is defined as a structure in which only one seller provides a good or service that has no close substitutes. This is different from perfect competition which we have seen earlier.

Question 4

Social surplus is maximized in case of _______.

A.

Perfect competition

B.

Oligopoly

C.

Monopoly

D.

Monopolistic competition

SOLUTION

Solution : A

Social surplus is maximized in case of perfect competition since resources allocation is controlled by the invisible hand of market demand are supply.

Question 5

When market power is obtained through barriers to entry created by the government or a regulatory body, the market power is called ___ market power.

SOLUTION

Solution :

When market power is obtained through barriers to entry created by the government or a regulatory body, the market power is called legal market power.

Question 6

When market power is obtained through barriers to entry created by a firm itself, the market power is called ___ market power.

SOLUTION

Solution :

When market power is obtained through barriers to entry created by the government or a regulatory body, the market power is called natural market power.

Question 7

Which of the following are examples of legal market power?

A.

Patented medicines

B.

Copyrighted books

C.

Facebook

D.

Indian Railways

SOLUTION

Solution : A, B, and D

Legal market power arises because of barriers to entry created by the government. This is achieved through patents, copyrights and sometimes even government monopolies like Indian railways.

Question 8

Since monopolies are price makers, they can potentially generate unlimited profits.

A.

True

B.

False

SOLUTION

Solution : B

Even though monopolies are price makers, the quantity they can sell at any price depends on the market demand. Hence, monopolies cannot generate unlimited profits by driving up the prices.

Question 9

The demand curve for a perfectly competitive market is ______.

A.

upward sloping

B.

downward sloping

C.

horizontal

D.

vertical

SOLUTION

Solution : C

The demand curve for a perfectly competitive market is horizontal as the demand is perfectly elastic. This is because all firms can sell however much they want at the market price and at the market price only.

Question 10

A monopoly firm can choose to sell at any price-output combination that ________.

A.

lies on the demand curve

B.

lies above the demand curve

C.

lies below the demand curve

D.

none of these

SOLUTION

Solution : A and C

A monopoly firm can choose to sell at any price-output combination that lies on or below the market demand curve

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