Chapter 4: The Theory of the Firm under Perfect Competition | 50 One Liner Q&A for MP Board and CBSE Board.

 

Author ✍️ R. Littey

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Given below are 50 important one-liner question-answers based on Class 12th Microeconomics, Chapter 4 – "The Theory of the Firm under Perfect Competition" for MP BOARD and CBSE BOARD:

Chapter 4: Theory of Firm 50 One-Liners Exam Oriented

Q1. What is the meaning of Perfect Competition? Ans. A market situation where there are a large number of buyers and sellers, and the price is determined by the market.

Q2. What is a firm in Perfect Competition? Ans. It is a Price Taker.

Q3. How is the product in a Perfectly Competitive market? Ans. Homogeneous (Identical).

Q4. How are entry and exit in Perfect Competition? Ans. They are free.

Q5. What is the shape of the demand curve in Perfect Competition? Ans. Perfectly Elastic (Horizontal straight line).

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Q6. What is the relationship between AR and MR? Ans. AR = MR = Price

Q7. What is Average Revenue (AR)? Ans. Revenue received per unit of sale.

Q8. What is Marginal Revenue (MR)? Ans. Additional revenue obtained by selling one additional unit.

Q9. What is the formula for Total Revenue (TR)? Ans. TR = Price × Quantity

Q10. How is Profit calculated? Ans. Profit = TR – TC

Q11. In which situation is the firm in equilibrium? Ans. When MR = MC.

Q12. What is the second condition for profit maximization? Ans. The MC curve must cut the MR curve from below.

Q13. How many types of profits can a firm earn in the short run? Ans. Normal Profit, Super-normal Profit, and Loss.

Q14. What is Super-normal Profit? Ans. When TR > TC (or AR > AC).

Q15. What does Normal Profit mean? Ans. When TR = TC (or AR = AC).

Q16. When does a situation of Loss occur? Ans. When TR < TC (or AR < AC).

Q17. Why does a firm continue production in the short run? Ans. As long as AR ≥ AVC.

Q18. What is the Shut Down Point? Ans. When AR < AVC.

Q19. From which curve is the supply curve formed? Ans. From that part of the MC curve which is above the AVC.

Q20. Why is the cost curve U-shaped in the short run? Ans. Due to the Law of Variable Proportions (Diminishing and Increasing Returns).

Q21. How are all factors in the long run? Ans. Variable.

Q22. Why doesn't a firm earn super-normal profit in the long run? Ans. Due to the freedom of entry and exit.

Q23. Which profit does a firm get in long-run equilibrium? Ans. Normal Profit.

Q24. What is the condition for long-run equilibrium? Ans. MR = MC = Minimum point of LAC.

Q25. What is the size of the firm in the long run? Ans. Optimal size.

Q26. Why is there no advertising in Perfect Competition? Ans. Because the product is homogeneous.

Q27. What is the full form of AVC? Ans. Average Variable Cost.

Q28. How does AFC behave? Ans. It decreases continuously.

Q29. What is the formula for MC? Ans. ΔTC / ΔQ

Q30. Why does MC first decrease as production increases? Ans. Due to division of labor.

Q31. Why does MC increase as production increases? Ans. Due to the Law of Diminishing Returns.

Q32. Who determines the price in Perfect Competition? Ans. The Market (Industry).

Q33. What does the firm's supply curve represent? Ans. The quantity supplied by the firm at various prices.

Q34. Why do some factors remain fixed in the short run? Ans. Due to lack of time.

Q35. What is the long-run cost curve called? Ans. Envelope Curve.

Q36. What is the shape of the market demand curve in Perfect Competition? Ans. Downward sloping.

Q37. What is the shape of the individual firm's demand curve? Ans. Horizontal line.

Q38. What happens when AR > AC? Ans. Super-normal profit.

Q39. What happens when AR = AC? Ans. Normal profit.

Q40. What happens when AR < AC? Ans. Loss.

Q41. When is the decision to stop production taken? Ans. When AR < AVC.

Q42. How is information in Perfect Competition? Ans. Perfect (Complete).

Q43. On which curve is the long-run supply curve based? Ans. On the LMC curve.

Q44. What is the primary objective of a firm? Ans. Profit maximization.

Q45. What does the equilibrium point represent? Ans. Maximum profit or minimum loss.

Q46. Why is price discrimination not possible in Perfect Competition? Ans. Because the product is homogeneous.

Q47. On what laws are cost curves based? Ans. On the laws of production.

Q48. How is the market price determined in the long run? Ans. By the demand and supply of the industry.

Q49. At what profit does the firm reach long-run equilibrium? Ans. At Normal Profit.

Q50. Why is Perfect Competition called an ideal market? Ans. Because resources are utilized in the best possible way.

Keep preparing! Best of luck for your exams.

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