Commerce MCQs
Topic Notes: Commerce
MCQs and preparation resources for competitive exams, covering important concepts, past papers, and detailed explanations.
Plato
- Biography: Ancient Greek philosopher (427–347 BCE), student of Socrates and teacher of Aristotle, founder of the Academy in Athens.
- Important Ideas:
- Theory of Forms
- Philosopher-King
- Ideal State
61
In the short run, what defines the supply curve for a firm operating in a perfectly competitive market?
Answer:
the rising portion of the marginal cost curve lying above the minimum point of the average variable cost curve
A competitive firm will continue to produce in the short run as long as the price covers its average variable costs. Therefore, the firm's supply curve is the segment of the marginal cost curve that lies above the minimum point of the average variable cost (AVC) curve, as this represents the point where the firm minimizes losses.
62
Under what condition is price discrimination feasible for a monopolist?
Answer:
different elasticities of demand
Price discrimination occurs when a monopolist charges different prices to different consumers for the same product. This is only profitable if the monopolist can segment the market based on varying price elasticities of demand, allowing them to charge higher prices to consumers with inelastic demand and lower prices to those with elastic demand.
63
How can market efficiency be improved starting from a monopolistic equilibrium without external policy intervention?
Answer:
By levying tax per unit of production
Levying a per-unit tax on a monopolist can sometimes lead to a reduction in deadweight loss if the tax structure is designed to align the monopolist's marginal revenue with the social marginal cost, thereby encouraging a level of output closer to the socially optimal level.
64
Why do cartels in an oligopolistic market structure typically fail to persist over time?
Answer:
Inter-firm rivalry
Cartels are inherently unstable because individual firms have a strong incentive to cheat on the agreed-upon production quotas to increase their own market share and profit. This inter-firm rivalry and lack of trust often lead to the collapse of the cartel agreement.
65
For which of the following scenarios is cost-plus pricing considered an appropriate strategy?
Answer:
Only (i), (ii) and (iii)
Cost-plus pricing is often used in product tailoring (customized goods), public utility pricing (regulated industries), and refusal pricing (to discourage unwanted business). It is less common in pure monopoly pricing, where firms typically focus on profit maximization based on marginal revenue and marginal cost rather than just cost-plus markups.
66
In which market structure is advertising considered a critical factor for survival?
Answer:
Oligopoly
In an oligopoly, a few large firms dominate the market. Because products are often similar, firms rely heavily on non-price competition, such as advertising and branding, to differentiate themselves and maintain market share, making advertising a vital strategic necessity for survival.
67
Which of the following is NOT a necessary condition for a firm to successfully practice price discrimination?
Answer:
Sellers should be an MNC
Price discrimination requires that a seller can segment the market based on different price elasticities of demand and prevent resale between segments. Being a Multinational Corporation (MNC) is not a prerequisite for price discrimination; a local firm can practice it just as effectively if it meets the market segmentation criteria. Therefore, option B is the correct answer.
68
Which of the following is not a characteristic of a firm operating as a 'price taker' in a perfectly competitive market?
Answer:
Negatively sloped demand
A price taker faces a perfectly horizontal (perfectly elastic) demand curve, meaning they can sell any quantity at the prevailing market price. A negatively sloped demand curve is characteristic of firms with market power, such as monopolies or firms in monopolistic competition, which can influence price by changing their output levels.
69
Which strategic behaviors can firms in an oligopolistic market employ to disadvantage their competitors?
Answer:
All the above
In an oligopoly, firms are interdependent. Strategic moves such as credible commitments to capacity, threats of price wars, or promises of cooperation are common tools used to influence rival behavior and secure a competitive advantage within the market structure.
70
At what point does a pure monopolist achieve its equilibrium level of output?
Answer:
MR = MC
For any firm, including a pure monopolist, profit maximization occurs at the output level where marginal revenue (MR) equals marginal cost (MC). If MR exceeds MC, the firm can increase profit by producing more; if MC exceeds MR, the firm should reduce production.