Managerial Economics Multiple Choice QuestionsSr.QuestionAnswer

1Which of the following is a characteristic of a perfectly competitive market?c. Firms can exit and enter the 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.

2If a perfectly competitive firm currently produces where price is greater than marginal cost ita. will increase its profits by 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.

3When 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.a. price is below the minimum of average variable cost.

4In 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.c. revenue from production is less than total costs.

5When 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.c. decrease the quantity of goods supplied in the market.

6In 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.b. firms are making zero economic profit.

7Equilibrium 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.d. higher than in monopoly markets and lower than in perfectly competitive markets.

8In 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.(d) All of the above.

9A 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.(b) beats all others, given the opponents choice.

10What 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.(a) The industry can then act like a monopoly.

11In 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.(d) there are no economic profits being made.

12Con 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.(d) demand for chicken decreases.

13The 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.d) decreased while the supply of stereo systems has decreased.

14The 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.(b) Percentage change in the quantity demanded divided by the percentage change in a different goods price.

15A 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.(d) where marginal profit is maximised.

16When 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.

17Oligopoly is a market structure that necessarily has

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

18Your 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.(b) a positive strategic effect

19If price of substitutes of (X) increases then demand curve of X will______Shift rightward

20Pure public goods are subject to the law of decreasing average cost, because of theeconomies of scale

21Features of Long run market areIt is durable goods market , Supply can be increased or reduced according to the demand , Sellers at least recover minimum price for their goods

22In case of indivisible goods, which are not priced, the decisions regarding their demand preferences are taken through price mechanism.False

23A monopolists product is a unique product.True

24The indivisible goods whose benefits cannot be priced are calledPure public goods

25The features of business or trade cycle areIt is a wave like movement , These fluctuations are recurrent in nature , Expansion and contraction in trade cycle are cumulative in effect

26The profits which must be deducted from the gross profits to arrive at net profits areMonopoly Profits

27The products sold by different sellers under pure competition are heterogeneous.False

28The 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.indivisible

29The advantage of cost-benefit analysis areMaximization of social welfare , Objective measurement of the trade-off , Maximization of difference between total benefits & total costs

30The important determinants of supply areAnswer Always referred to in relation to price & time , Government policy , Availability of factors of production

31If the output rises in the greater proportion than that of the increase in factor inputs, it is referred to as ________.increasing returns to scale.

32A fall in price tends the demand for goods to ________expand

33Question Perfectly elastic demand curve is ________Horizontal

34Methods of measurement of elasticity arePercentage method , Geometric method , Total outlay method

35There are no real exceptions to the law of demandFalse

36The divisible goods, whose benefits can be priced, are called pure public goods.False

37In the measurement of profit, the differences in the concept of profit arise due to differences in cost concepts.True

38The act of manufacturing goods and services is calledproduction

39Price discrimination is possible in perfect competitionFalse

40Supply is predominantly determined by ________.stock