Important Questions with Answers for CBSE Class 11 Economics Part B Unit 4 – Forms of Market and Price Determination under perfect competition with simple applications, which is outlined by expert Economics teachers from the latest version of CBSE (NCERT) books
Question 1
What is the break-even price?
Answer:
The break-even price is the cost at which a company earns a normal profit (Price=AC). In the long run, the break-even price can be described as P=AR=MC.
Question 2
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) Supernormal Profit
Question 3
Define perfect competition.
Answer:
Perfect competition is a market where a large number of buyers and sellers sell a similar product at the same price.
Question 4
What is a Monopoly in economics?
Answer:
Monopoly is a condition where only one seller dominates the whole market space and has control over the price of a product.
Question 5
Which is an ideal market?
(a) Monopolistic Competition
(b) Oligopoly
(c) Monopoly
(d) Perfect Competition
Answer:
(d) Perfect Competition
Question 6
In which market, the demand curve is linear and parallel to X-axis?
(a) Monopoly
(b) Perfect Competition
(c) Oligopoly
(d) Monopolistic Competition
Answer:
(b) Perfect Competition
Question 7
What is Oligopoly?
Answer:
Oligopoly refers to a market structure where a few large sellers sell the same or different products.
Question 8
Explain the implication of free entry and free exit of a firm in the perfect competition market.
Answer:
The implication of free entry and free exit of a firm in the perfect competition market is that in this market structure, no company earns an unusual profit. Each company just earns a normal profit.
Question 9
What is product differentiation?
Answer: Product differentiation means the substitute produced by different manufacturers to show their products are different from other products available in the market. The product differentiation can be in colour, shape, brand name, packaging, etc.
Question 10
Under perfect competition, the cost lies below the average cost curve; the company would
(a) Incur losses
(b) Make an unusual profit
(c) Make normal profits
(d) Profit cannot be determined
Answer:
(a) Incur losses
Question 11
When a firm’s Total Revenue =Total Cost, it cannot cover its normal profit
(a) False
(b) True
(c) Can’t say
(d) None of these
Answer:
(a) False
Question 12
What is the normal profit?
Answer:
Normal profit is referred to as the minimum or least amount of profit which is required to keep an organisation engaged in the production process for the long run.
Question 13
What is a patent right?
Answer:
Patent right is an exclusive license or right conferred to an organisation to manufacture particular goods or services under a specific technology.
Question 14
What is a price taker company?
Answer:
Price taker companies are those companies that have no option but to accept the price determined by the industry.
Question 15
What is a price maker company?
Answer:
A price maker company is that company which can influence the price of a product on its own.
Question 16
What is cooperative oligopoly?
Answer:
A cooperative oligopoly is a situation of the market where the different companies cooperate with each other in fixing the price of goods or services.
Question 17
What are the advertisement costs?
Answer:
An advertisement cost is a cost which a company has to suffer while promoting their products and services and result in sales. Advertisement can be done through newspaper, TV, radio, magazine, etc.
Question 18
What is unusual or abnormal profit?
Answer:
Unusual or abnormal profits are those when the Total revenue > Total cost.
Question 19
Define the implication of the following:
- Interdependence between firms in Oligopoly
- A large number of sellers in perfect competition
Answer:
(1) Oligopolies are composed of a few large companies and these companies’ actions can affect the market condition. Therefore, the other contender company will be aware of the market actions and will respond appropriately. Mutual interdependence survives when the action of one company has a significant impact on the other company in the industry.
(2) A perfectly competitive market is controlled by the existence of a large number of sellers and buyers of a product, which means that no buyers or sellers will purchase and sell shares that are so large that it will impact the total purchase and sale in the market.
Question 20
The demand curve of Oligopoly is?
(a) Kinked
(b) Vertical
(c) Horizontal
(d) Rising left to Right
Answer:
(a) Kinked
Question 21
The concept of the supply curve is relevant only for?
(a) Oligopoly
(b) Monopoly
(c) Monopolistic Competition
(d) Perfect Competition
Answer:
(d) Perfect Competition
Question 22
In perfect competition, when the marginal revenue and marginal cost are equal, profit is?
(a) Zero
(b) Average
(c) Maximum
(d) Negative
Answer:
(c) Maximum
Question 23
In perfect competition, a company earns an abnormal profit when average revenue exceeds the?
(a) Total revenue
(b) Average cost
(c) Total fixed cost
(d) Marginal revenue
Answer:
(b) Average cost
Question 24
When a negative sloping straight-line demand curve, the total revenue curve is.
(a) A rectangular hyperbola
(b) Convex to the original
(c) An inverted vertical parabola
(d) Concave to the origin
Answer:
(c) An inverted vertical parabola
Question 25
Oligopoly that has identical products is known as.
(a) Pure oligopoly
(a) Collusive oligopoly
(a) Independent oligopoly
(a) None of the above
Answer:
(a) Pure oligopoly
Question 26
Explain the effect of a ‘price ceiling’.
Answer:
The direct effect of a price ceiling may be termed as black marketing. It is a state, where the product under the government’s authority is illegally sold at higher rates than the price fixed by the government. It might be possible when a buyer is willing to pay higher rates for the product than not to buy.
Question 27
A market for a good is in equilibrium. Demand for good ‘increases’. Explain the chain effects of this change.
Answer:
The chain effects of this change are:
1. When the price is constant, surplus demand emerges
2. This also increases the competition among the buyers insisting them to raise the price
3. A rise in the price of a product cause fall or decrease in the demand and expansion or rise in supply
4. The cost of the product continues to increase until the market is balanced at a greater price
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