Some of the important questions are covered in this question paper from the chapter The Theory of the Firm under Perfect Competition.
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Questions:

Generic 3

8 x 3 = 24

Complete the following table.

Price (Rs.)	Output (Units)	Total Revenue(Rs.)	Marginal Revenue(Rs.)
-	1	6	-
4	-	-	2
-	3	6	-
1	-	-	(-) 2

State three causes of decrease in supply.

What is market supply?

What are the conditions of producer's equilibrium for a competitive firm?

Explain the implication of 'perfect knowledge about market' under perfect competition.

Explain what happens to profits in the long run if the firms are free to entry the industry.

How does technological progress affect the supply curve of a firm?

What conditions must hold if a profit - maximizing firm produces positive output in a competitive market?

Generic 4

1 x 4 = 4

Will a profit-maximizing firm in a competitive market produce a positive level of output in the long-run if the market price is less than the minimum of AC? Give an explanation.

1 Marks

5 x 1 = 5

10.

What do you mean by perfectly elastic supply?

11.

Define elasticity of supply.

12.

What is the relationship between Total Revenue, price and quantity sold?

13.

In which market form a firm cannot influence the price of the product?

14.

Under which market form, a firm is a price taker?

Fill up / 1 Marks

5 x 1 = 5

15.

____________ studies the functional relationship between supply and its various determinants.

16.

TR-(TVC-TFC)=______________.

17.

The first necessary condition of firm's equilibrium is ________________.

18.

Profit of a producer is calculated by taking the difference between its Total Cost and __________.

19.

The main objective of producer is ____________.

True or False

5 x 1 = 5

20.

When TR is maximum, MR is Zero.

(a)

False

(b)

True

21.

If AR is diminished then AR>MR.

(a)

False

(b)

True

22.

Elasticity of supply is defined as the percentage change in quantity supplied caused by a given percentage change in price of the commodity.

(a)

False

(b)

True

23.

Break-even point is defined as a situation when TR>TC.

(a)

True

(b)

False

24.

Shut-down point means shutting down the firm.

(a)

False

(b)

True

Multiple Choice Question

10 x 1 = 10

25.

MR may be__________.

(a)

positive

(b)

negative

(c)

zero

(d)

all of these

26.

Marginal Revenue (MR)=

(a)

\(\frac { TR }{ Q } \)

(b)

\(AR\times Q\)

(c)

\(\frac { \Delta TR }{ \Delta Q } or{ TR }_{ n }-{ TR }_{ n-1 }\)

(d)

TR-AR

27.

Average Revenue (AR)=

(a)

TR-MR

(b)

\(\frac { \Delta TR }{ \Delta Q } \)

(c)

\(\frac { TR }{ Q } \)

(d)

\(P\times Q\)

28.

The value of elasticity of supply lies between___________.

(a)

\(0to\infty \)

(b)

-1 to +1

(c)

0 to 1

(d)

1 to 10

29.

Horizontal summation of the supply curves of different firms in the market is known as__________.

(a)

Demand Curve

(b)

Individual Supply Curve

(c)

Market supply curve.

(d)

All of these

30.

Which among the following is the cause of extension and contraction in supply?

(a)

Technological change.

(b)

Change in input price

(c)

Change in the price of commodity

(d)

All of these

31.

Which among the following is the method of working out producer's equilibrium?

(a)

TR-TC method

(b)

MR-MC method

(c)

Isoquant Curve method

(d)

All of these

32.

From where does the MC curve cuts the MR curve in the situation of equilibrium?

(a)

Above

(b)

Below

(c)

Nowhere

(d)

None of these

33.

In the situation of producers equilibrium, MR is __________ to MC.

(a)

(b)

Less

(c)

Negative

(d)

Equal

34.

Producing maximum with minimum cost is known as ___________.

(a)

consumer equilibrium

(b)

Producer's equilibrium

(c)

Profit

(d)

Loss

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Answers Key:

Generic 3

8 x 3 = 24

The completed table is as follows:

Price (Rs.)	Output (Units)	Total Revenue(Rs.)	Marginal Revenue(Rs.)
6	1	6	6
4	2	8	2
2	3	6	(-) 2
1	4	4	(-) 2

Following are the three causes of decrease in supply.
(i) Increase in the excise tax.
(ii) Increase in the price of raw material or inputs.
(iii) Technical degradation

Market supply refers to the total supply of a good from all the firms in the market at a given price.

The necessary conditions for producer's equilibrium or profit maximisation are:

(i) Marginal Revenue=Marginal Cost (MR=MC).

(ii) MC should be rising.

Perfect competition requires that all the buyers and sellers must possess perfect knowledge about the existing market conditions, especially regarding the market price, quantities and sources of supply. With the availability and use of perfect knowledge, no buyer could be charged price different from the market price. Similarly, no seller would unnecessarily incur loss by selling at a price lower than the prevailing market price. In this way, perfect knowledge ensures market transactions at a uniform price.

The freedom to entry and exit ensures that the firms earn just the normal profits in the long run. If the existing firms earn above-normal profits, new firms will enter the industry. This will raise the supply and bring the price down. The profits will fall till each firm is once again earning only the normal profits.

The supply curve of a firm is a positive function of a state of technology. That is, if the technology available to the firm appreciates, more amount of output can be produced by the firm with the given levels of capital and labour. Due to such innovations or technological advancements, the firm will experience lower cost of production, which will lead to rightward downward shift of the MC curve. This will further lead to rightward shift of the firm’s supply curve. Thus, due to the appreciation and advancement of production techniques, the firm will produce more and more output that will be supplied at a given market price.

The following three conditions must hold if a profit maximising firm produces positive level of output (say equilibrium output Q*) in a competitive market:
1) MR must be equal to MC at Q*.
2) MC should be upward sloping or rising at Q*.
3) In short run :- Price must be greater than or equal to AVC. i.e. P ≥ AVC at Q*.
In long run :- Price must be greater than or equal to LAC.

Generic 4

1 x 4 = 4

No, a profit -maximising firm in a competitive market will not produce a positive level of output in the long-run if the market price is lessthan the minimum of long-run Average Cost (P < min LRAC). i If a firm produces at this level, total cost will be more than its revenue resulting in loss
A profit maximising firm produces zero output in the long-run when the market price (P) is less than the minimum of its long-run Average Cost w (LRAC). Ifthe firm is producing an output level of \(\\ Oq_{ 1 }\)the firm's Total Cost exceeds its revenue by an amount equal to the area of rectangle PEBA. This means that \(\\ Oq_{ 1 }\)is not a profit maximising output level. An output level where price is less than the minimum of long-run Average Cost is the shut-down point for the firm. A firm should not operate at this level

1 Marks

5 x 1 = 5

10.