Perfect Competition Multiple Choice Questions
1. Which one is the characteristic of perfect competition?
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- It has a large number of buyers and sellers selling homogeneous products at a uniform price.
- There is no free entry and exit for all the firms.
- It has a large number of buyers and sellers where the government decides the price of the product.
- It has a large number of buyers and sellers selling heterogeneous products at a uniform price.
Answer: 1
2. Which of the following options is not the characteristics of the perfect competition market.
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- Sellers selling homogeneous products.
- Free entry and exit for the firms.
- No intervention by the government.
- Sellers spend a huge amount of money on advertising.
Answer: 4
3. Which option shows the distinguishing feature between perfect and monopolistic competition?
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- In perfect competition, there exist homogeneous products but in monopolistic competition, the products are different from one another.
- Barriers to entry are present in the perfect competition but in the perfect competition, there are no barriers to entry.
- Monopolistic competition faces many barriers to entry but there is no such problem in perfect competition.
- In perfect competition goods sold by the sellers are different from one another while the goods sold in the monopolistic market are identical.
Answer: 1
4. Sellers selling homogeneous products in the perfect competition market indicate?
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- A huge amount of loss for all the sellers.
- Buyers will not buy the products.
- Sellers will become price makers.
- Sellers cannot influence the prices of the products.
Answer: 4
5. Which of the following options creates a barrier to entry for new firms?
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- A rule of law that protects the existing firms in the market from the new firms.
- Increased competition in the market deters new firms from entering.
- No firm can create a barrier to entry.
- Huge losses made by the existing firms in the market deter new firms from entering.
Answer: 1
6. Which of the following statements is true in the case of a perfect competition market?
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- There is intervention by the government.
- Buyers are the price maker.
- There is no transportation cost.
- All the products are sold at different prices.
Answer: 3
7. Which of the following markets have a few numbers of firms.
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- Oligopoly
- Monopolistic competition
- Perfect competition
- Monopoly
Answer: 4
8. Statement (1): Perfect competition hypothetical situation.
Statement (2): Under perfect competition, the government decides the prices of all the products and services.
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- (1) is correct and (2) is incorrect.
- (1) is incorrect and (2) is correct.
- Both (1) and (2) are correct.
- Both (1) and (2) are incorrect.
Answer: 1
9. The elasticity of demand for the product in a single firm in the perfect competition is
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- Zero because all the sellers are selling an identical product.
- Zero because all the sellers are selling heterogeneous products.
- Infinite because all the sellers are selling identical products.
- We cannot calculate the elasticity of demand for a product in perfect competition.
Answer: 3
10. What is the unique feature of perfect competition concerning factors of production.
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- All the factors of production have total mobility.
- All the factors of production don’t have total mobility.
- Only capital does not have mobility while other factors of production have total mobility.
- Only labour has total mobility.
Answer: 1
11. In perfect competition how the prices of goods and services are decided?
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- Demand and supply forces decide the prices of goods and services.
- The seller decides the prices of goods.
- Government influences the prices of goods.
- Buyers control the price level by influencing demand for the products.
Answer: 1
12. Business owners in the perfect competition have to make different types of decisions, both short and long term. Which of the following options are short term decisions?
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- Output levels that have a direct impact on profits.
- How much to spend on advertising.
- To enter the marketplace or take an exit.
- The price of the goods and services.
Answer: 1
13. Sellers in perfect competition are:
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- Price maker
- Price taker
- Wealthy
- Poor
Answer: 2
14. Which of the following statements is true if the seller’s product is facing perfectly elastic demand?
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- There are a lot of substitutes available Nik the market.
- The seller doesn’t have any motive to sell the products below the market price.
- The seller won’t be able to make a profit if he tries to sell the product above the market price.
- All of the above.
Answer: 4
15. Sellers in the perfect competition are price takers because:
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- Sellers get a lot of pressure from other competing firms to accept the prevailing equilibrium price in the market.
- Buyers influence the prices of products.
- Government forces the sellers to sell a product at a particular price.
- None of the above.
Answer: 1
16. What will happen will the sellers increase the prices of their products:
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- The seller will make a lot of profit.
- All the customers of the seller will rush to its competitors’ firms because they can get the same product at a lower price.
- Buyers don’t have an option to buy the same product.
- The seller will have to leave the marketplace.
Answer: 2
17. How is the demand curve in a perfectly competitive market?
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- The demand curve is a horizontal line at the market price.
- The demand curve is a vertical line at the market price.
- The demand curve is flat.
- The demand curve cannot be calculated.
Answer: 1
18. How can perfect competition maximize profit?
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- Firms must set marginal revenue equal to marginal cost (MR=MC).
- All the firms should increase the prices of the products.
- Sellers should create a scarcity of goods in the market.
- Buyers should buy the products at a lower price.
Answer: 1
19. What industry is closest to perfect competition?
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- The agricultural industry is the closest to the perfect competition because there are a lot of small producers which don’t have the power to influence the prices.
- The services industry is the closest to perfect competition since there is a huge number of buyers and sellers
- There is no such industry which comes closest to the perfect competition.
- Both a and b.
Answer: 1
20. Why is perfect competition unrealistic?
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- In any marketplace, some firms can influence the prices of the products.
- Advertising and transportation costs exist.
- There is always free entry and exit.
- All of the above.
Answer: 4
21. Why is there no need for sellers to spend money on advertising?
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- Since all the buyers have perfect knowledge of all the products available in the market there is no need for sellers to spend money on advertising.
- Sellers want to save money.
- The government has struck restrictions on the advertisement.
- All of the above.
Answer: 1
22. Firms in a perfectly competitive market can only make profits or losses in the short run because:
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- There is no government intervention.
- There are no advertising or transportation costs.
- There is an infinite number of firms producing infinite homogeneous products.
- All the factors of production have total mobility.
Answer: 3
23. Which of the following statements about perfect competition are true?
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- Both the buyers and sellers know all the details about the products available in the market.
- Buyers can change the prices of the products by influencing demand.
- Products are sold at different prices.
- Firms are price makers.
Answer: 1