Please see The Theory of the Firm Under Perfect Competition Exam Questions Class 12 Economics below. These important questions with solutions have been prepared based on the latest examination guidelines and syllabus issued by CBSE, NCERT, and KVS. We have provided Class 12 Economics Questions and answers for all chapters in your NCERT Book for Class 12 Economics. These solved problems for The Theory of the Firm Under Perfect Competition in Class 12 Economics will help you to score more marks in upcoming examinations.
Exam Questions The Theory of the Firm Under Perfect Competition Class 12 Economics
MCQs
Question. ____________ is an ideal market?
a) Monopolistic competition
b) Oligopoly
c) Monopoly
d) Perfect competition
Answer
D
Question. If under perfect competition, the price lies below the average cost curve, the firm would?
a) Incur losses
b) Make abnormal profits
c) Make only normal profits
d) Profit cannot be determined
Answer
A
Question. When AR=Rs. 10 and AC=Rs. 8, the firm makes?
a) Gross profit
b) Normal profit
c) Net profit
d) Supernormal profit
Answer
D
Question. A competitive firm in the short run incurs losses. The firm continues production, if?
a) P>AVC
b) P=AVC
c) P>=AVC
d) P<AVC
Answer
C
Very Short Answer Type Questions
Question. Define Monopoly.
Answer : Monopoly is a market situation dominated by a single seller who has full control over the price.
Question. What is product differentiation?
Answer : Product differentiation means close subsittues offered by different productes to show their output differs from other output available in the market. Differntiation can be in colour, size packing, brand name etc. to attract buyers.
Question. What is break – even price?
Answer : In a perfectly competitive market, break-even price is the price at which a firm earn normal profit (Price = AC). In the long run, break-even price is that price where P = AR =MC.
Short Answer Type Questions
Question. Why is the demand curve facing monopolistically competitive firm likely to be very elastic?
Answer : The reason for this is the product produced by monoplistically competitive firms are close substitue to each other. If the products are closer substitutes to each other thenthe ealsticity of dmenad is high which makes the firm’s demand curve elastic.
Question. With the help of the diagram, show the effect on equilibrium price and quantity when supply is perfectly inelastic and demand increases & decreases.
Answer :
Question. When will equilibrium price not change even if demand and supply increases?
Answer : When proportionate increase in demand is just equal to proportionate increase in supply, equilibrium price will not change. It can be shown in the following diagram.
In the above illustrative diagram, increase in demans is just equal toincrease
in supply. Demand curve shift form D to D1 and supply curve shift from S to S1 which intersect at point E. Thus equilibrium price remain unchanged at OP though equalibriumquantity increased from OQ to OQ1.
Long Answer Type Questions
Question. Explain the conditions of a producer’s equilibrium in terms of Marginal Cost and Marginal Revenue. Use diagram.
Answer : Producer’s equilibrium refers to a situation, where a producer is producing that level of output, at which its profits are maximum. It is a situation of profit maximisation. Under MR-MC approach producer will only strike at equilibrium at that level of production where following conditions are satisfied.
That is:-
1. MR=MC
2. MC must rise after MR=Mc
MC must be rising at the point of equilibrium or MC curve must cut MR curve from below.
Question. A firm supplies 500 units of a good at a price of Rs. 5 per unit. The price elasticity of supply of good is 2. At what price will the firm supply 700 units?
Answer : It is given in the question that:-
P = 5, ΔP=?
Q = 500 units, Q1 = 700 units, thus ΔQ = 700-500 = 200 units,
Es = 2
New price = P+ ΔP = 5+1=6
Therefore, firm will supply 700 units at Rs.6 per unit.
