A profit-maximising firm aims to make the gap between which two amounts as large as possible?
Correct answer C. Total revenue and total cost
Topic / 56 questions
Profit Maximizing Under Perfect Competition And Monopoly MCQs
Profit Maximizing Under Perfect Competition And Monopoly MCQs are multiple-choice questions on how firms choose output and price in different market structures, using marginal revenue, marginal cost and returns to scale. They help CSS, PMS, UGC NET and economics lecturer candidates. Every question displays an instant answer, so you can test your understanding of market theory quickly.
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Which of these costs is most likely to vary with a firm’s output?
Correct answer C. The payroll taxes that are paid on employee wages
In the sense economists use it, what characterises the short run?
Correct answer D. At least one fixed factor of production and firms neither leaving nor entering the industry
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Which statement about average product (AP) and marginal product (MP) is correct?
Correct answer A. If AP exceeds MP, then AP is falling
Engineers at the All-Terrain Bike Company find that raising all inputs by 15% raises output by 15%. If input prices stay constant, what happens as output increases?
Correct answer B. Average costs remain constant
According to most empirical studies, what shape do firms’ cost curves take?
Correct answer C. Slope down to the right and then level off
What term describes the rate at which a firm can replace labour with capital while keeping output unchanged?
Correct answer B. Marginal rate of factor substitution
Which formula gives average fixed cost?
Correct answer A. TFC/q
Which definition of marginal revenue is correct?
Correct answer D. The added revenue that a firm takes in when it increases output by one additional unit
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Which pair of curves can be used on a diagram to show the size of maximum profit?
Correct answer B. The AC and AR curves
As the manager of a firm in a perfectly competitive industry, what decisions would occupy most of your time?
Correct answer C. How much of each input to use
How does the number of available substitutes affect a monopolist’s power to raise its price?
Correct answer C. More; less
Compared with a competitively organised industry, what does a monopoly do?
Correct answer C. Produces less output, charges higher prices and earns economic profits
How do economists characterise the short run?
Correct answer D. At least one fixed factor of production and firms neither leaving nor entering the industry
Which statement correctly describes the long run in economics?
Correct answer B. There are no fixed factors of production
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The ABC Typing Service earns a rate of return above what it needs to keep operating. What does this tell us?
Correct answer C. The firm is earning economic profit
For firms that carry relatively little risk, how does the normal rate of profit compare with the interest rate on risk-free government bonds?
Correct answer A. Approximately equal to
How does marginal revenue compare with price for a monopolist?
Correct answer C. Lower than price for all units other than the first
What name is given to an industry whose economies of scale are so large that a single producer can supply the whole market most efficiently?
Correct answer D. A natural monopoly
What mainly distinguishes monopolistic competition from perfect competition?
Correct answer C. In monopolistic competition, firms can differentiate their products
About Profit Maximizing Under Perfect Competition And Monopoly MCQs
This category compares how firms behave in perfect competition, monopoly, monopolistic competition and oligopoly. Questions ask what marginal revenue is, why marginal revenue in a monopoly is below price, what can be inferred when a monopolist maximises profit, and how a monopoly compares with a competitive industry in output and price. Natural monopoly, where one firm can supply the whole market most efficiently because of economies of scale, also appears.
Cost and strategy questions complete the set. You will meet diminishing marginal returns, constant returns to scale when all inputs and output rise by the same percentage, the kinked demand curve model of oligopoly and contestable markets, where the threat of entry makes large firms behave more competitively. These ideas are core microeconomics and appear regularly in economics papers. Diagrams help a great deal here.
Key facts to remember
- A firm maximises profit where marginal revenue equals marginal cost.
- In perfect competition, price equals marginal revenue for each firm.
- For a monopolist facing a downward-sloping demand curve, marginal revenue is less than price.
- A natural monopoly arises when one firm can supply the market at lower cost than several firms.
- The kinked demand curve model assumes demand is elastic above the kink and inelastic below it.
Exams that include Profit Maximizing Under Perfect Competition And Monopoly MCQs
Pakistan
- CSS
- PMS
- FPSC
- PPSC
- Lecturer tests
India
- UGC NET
- UPSC CSE
- State PSC exams
Bangladesh
- BCS
- Bangladesh Bank recruitment
- Bank job exams
How to prepare for Profit Maximizing Under Perfect Competition And Monopoly MCQs
- Draw MR, MC and demand curves for both perfect competition and monopoly, marking the profit-maximising output on each.
- Compare the four market structures in a table covering number of firms, entry barriers, product type and pricing power.
- Remember that constant returns to scale keep long-run average cost unchanged as output rises, assuming input prices stay fixed.
- Learn the logic of the kinked demand curve, which explains why oligopoly prices tend to stay stable.
Frequently asked questions
How does a firm maximise profit?
A firm maximises profit by producing the level of output where marginal revenue equals marginal cost, provided marginal cost is rising at that point. Producing more would add more to cost than to revenue, and producing less would give up output that adds more to revenue than to cost.
How many Profit Maximizing Under Perfect Competition And Monopoly MCQs are on MCQs360?
MCQs360 has 57 MCQs in this category, each with an instant answer. You can practise free with no sign-up, and pair this topic with introduction to economics and macroeconomic issues for well-rounded economics revision. Short daily sets help.
Which exams ask questions on market structures?
Market structure and profit maximisation questions appear in CSS and PMS economics papers and in FPSC and PPSC economics lecturer tests in Pakistan. In India they are tested in UGC NET Economics, the UPSC CSE economics optional and State PSC exams. In Bangladesh they appear in BCS and bank recruitment papers.
What is the difference between perfect competition and monopoly?
Perfect competition has many firms selling identical products with free entry, so each firm is a price taker and price equals marginal revenue. A monopoly has a single seller with barriers to entry, so it sets price, faces a downward-sloping demand curve and usually produces less at a higher price.
Last reviewed October 2026