Economic System and Market Structures AFCAT Questions

AFCAT Indian Economy

Economic System and Market Structures MCQ Questions


13.
Which of the following is a necessary assumption of the perfect competition model regarding entry and exit of firms?
A.
Entry requires approval from existing firms in the industry
B.
Exit from the industry is permanently prohibited
C.
Firms can freely enter or exit the industry, with no significant barriers in either direction
D.
Only firms with a government licence may enter the industry
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ANSWER :
C. Firms can freely enter or exit the industry, with no significant barriers in either direction
14.
Under the assumption of 'perfect knowledge' in a perfectly competitive market, both buyers and sellers are assumed to:
A.
Know nothing about prevailing market prices
B.
Rely solely on advertising for all product information
C.
Have complete and accurate information about prices, quality, and availability of the product
D.
Have access to information only after the transaction is completed
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ANSWER :
C. Have complete and accurate information about prices, quality, and availability of the product
15.
A firm operating under perfect competition is typically described as a 'price taker' because:
A.
It sets the market price for the entire industry
B.
It negotiates a unique price with each individual buyer
C.
It can charge any price it wishes without losing customers
D.
It must accept the price determined by overall market demand and supply, and cannot influence it through its own actions
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ANSWER :
D. It must accept the price determined by overall market demand and supply, and cannot influence it through its own actions
16.
What is the shape of the demand curve faced by an individual firm under perfect competition?
A.
A horizontal (perfectly elastic) straight line at the prevailing market price
B.
A downward-sloping curve identical to a monopolist's demand curve
C.
A vertical (perfectly inelastic) straight line
D.
An upward-sloping curve
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ANSWER :
A. A horizontal (perfectly elastic) straight line at the prevailing market price
17.
For a perfectly competitive firm, which of the following relationships between average revenue (AR) and marginal revenue (MR) holds true?
A.
AR equals MR, and both are equal to the constant market price
B.
AR and MR are unrelated to the market price
C.
MR is always less than AR
D.
MR is always greater than AR
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ANSWER :
A. AR equals MR, and both are equal to the constant market price
18.
In the short run, a firm under perfect competition may experience which of the following outcomes, depending on the relationship between price and average cost?
A.
Only losses, since competition always drives price down to zero
B.
Supernormal profit, normal profit, or losses, depending on whether price exceeds, equals, or falls short of average cost
C.
Only normal profit, with no other outcome ever possible
D.
Only supernormal profit, since competition guarantees high returns
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ANSWER :
B. Supernormal profit, normal profit, or losses, depending on whether price exceeds, equals, or falls short of average cost