Free Non-Competitive Markets 03 Practice Test - 11th Grade - Commerce
Question 1
See the MC and MR curves for a firm given below and identify the profit-maximizing level of output.
4
10
12
24
SOLUTION
Solution : B
Profit maximization occurs when MC=MR. This occurs at an output level of 10 units where the MC and MR curves intersect.
Question 2
If the price is Rs 10, quantity supplied is 20 and the average total cost is Rs 3, then calculate profit.
Rs 100
Rs 140
Rs 160
Rs 200
SOLUTION
Solution : B
Profit =(P-ATC) ×q=7×20=Rs 140
Question 3
The demand curve for a monopoly firm is p= 80-0.5q. If the MC is constant at Rs 10, find the profit-maximizing level of output.
35
50
70
80
SOLUTION
Solution : C
Given that demand curve is p= 80-0.5 q
The slope of demand curve = 0.5
Slope of MR curve = 2 × 0.5= 1
The equation of the MR curve is MR = 80-q
Equating MR=MC, we get 80 -q = 10
Hence, the profit-maximizing output is 70
Question 4
In which of the following cases is the social surplus minimum?
monopoly
oligopoly
cartel
perfect competition
SOLUTION
Solution : A and C
The consumer surplus is minimum in the case of monopoly and cartels. Effectively, a cartel formed by a collusion of firms functions as a monopoly. In an oligopoly, there is some competition between firms and this leads to greater consumer surplus. In perfect competition, the social surplus is maximized.
Question 5
Cartels are inherently unstable because
firms in a collusion have the incentive to sell at lower than agreed prices and drive up profits.
forming cartels and price fixing is illegal
all firms in the market have to agree to form cartels and when a new firm enters the market, the cartelisation has to happen again.
All of these
SOLUTION
Solution : D
All of the listed reasons contribute to the instability of cartels.
Question 6
The supply curve for a monopolist is
upward sloping
downward sloping
horizontal
none of these
SOLUTION
Solution : D
Monopolists are price makers i.e. they decide the price at which to sell a product. Hence, the concept of the supply curve is not applicable for a monopolist.
Question 7
In the long run, firms under monopoly or oligopoly must only earn normal profits. State true or false.
True
False
SOLUTION
Solution : B
Monopolies and oligopolies have the freedom to adjust prices and hence, their long-run equilibrium profits are non-zero.
Question 8
Which of the following markets closely resembles a perfectly competitive market?
Stock market
Markets for agricultural products
Markets for petroleum and natural gas
All of the above
SOLUTION
Solution : B
Markets for agricultural products like rice, wheat etc resemble perfectly competitive markets because there are a large number of producers, free entry and exit and products are identical.
Question 9
What is the profit maximization rule for monopolistic competition?
MC=MR=P
P >MC = MR
MC=AR=P
MC=AR > P
SOLUTION
Solution : B
Profit maximization rule for a monopolistic competition is the same as that of a monopoly.
P >MC = MR
Question 10
The market demand curve for monopolistic competition is flatter than the demand curve for monopoly. State true or false.
True
False
SOLUTION
Solution : A
In case of monopolistic competition, the demand is more elastic as competition is more i.e. products have more substitutes. Hence, the demand curve is flatter.