Plus Two Microeconomics Chapter Wise Questions and Answers Chapter 6 Non-Competitive Markets

Kerala Plus Two Microeconomics Chapter Wise Questions and Answers Chapter 6 Non-Competitive Markets

Plus Two Economics Non-Competitive Markets One Mark Questions and Answers

Question 1.
Point out the value of the Marginal Revenue when the demand curve is elastic.
Answer:
When the demand curve is elastic, the value of Marginal Revenue (MR) is zero.

Question 2.
Identify from the following demand curve faced by a firm under monopolistic competition.
Answer:

Answer:
(C)

Question 3.
The form of the market having only 2 sellers is called:
(a) monopoly
(b) duopoly
(c) oligopoly
(d) monopolistic competition
Answer:
(b) duopoly

Question 4.
Differentiated products is a characteristic of
(a) Monopolistic competition only
(b) Oligopoly only
(c) Both Monopolistic competition & Oligopoly
(d) Monopoly
Answer:
(c) Both Monopolistic competition & Oligopoly

Plus Two Economics Non-Competitive Markets Two Mark Questions and Answers

Question 1.
Suppose there are only two firms manufacturing cars in India, namely, Maruti and Hyundai. What market form is this?
Answer:
lip This market form is known as the duopoly market. Duopoly is a market structure in which there are only two firms producing a product.

Question 2.
What do you mean by cartel?
Answer:
Cartel is a kind of mutual agreement or coordination of the output and pricing policies of firms having then individual identities so as to act if it is a monopoly. This is a feature of the oligopoly market.

Question 3.
Observe the following figures and identify market situations.

Answer:

1. Monopoly
2. Monopolistic competition

Question 4.
Suggest any 2 examples of a monopolistically competitive market.
Answer:

1. Soap industry
2. Toothpaste industry.

Question 5.
The features of firms under different market structure is given below. Classify them into perfect competition and oligopoly.
(a) Collusion
(b) Free entry and exit
(c) Interdependence
(d) Firms are price takers
Answer:
a & c Oligopoly, b & d Perfect competition

Plus Two Economics Non-Competitive Markets Three Mark Questions and Answers

Question 1.
The monopolist cannot determine the price and quantity simultaneously. Do you agree? Substantiate your answer.
Answer:
Yes, I agree to the statement that the monopolist cannot determine the price and quantity simultaneously. This is because, if the monopolist wants to sell more of the commodity, he needs to reduce the price. Therefore, he can change either of the price or the quantity.

Question 2.
Examine the relationship between Marginal Revenue and Price Elasticity of Demand.
Answer:
Whenever the MR is positive the price elasticity of AR (Demand Curve) isgreaterthan one, that is elastic. When the MR is zero the price elasticity of AR (Demand Curve) is 1, that is unitary elastic. When the MR is negative the price elasticity of demand curve is less than one, that inelastic.

Question 3.
Choose the correct answer
a. In monopoly:

1. There are many producers
2. There is no seller
3. There is no buyer
4. There is single seller

b. When two commodities are complementary to one another

1. They may be jointly demanded
2. They may be complementary goods
3. They may be substitutes
4. None of the above

c. Generally government fix control price

1. Equal to equilibrium price
2. Less than equilibrium price
3. More than equilibrium price
4. None of these

Answer:
a. 4. There is single seller
b. 1. They may be jointly demanded
c. 2. Less than equilibrium price

Question 4.
State whether the followirig satements are true or false.

1. The seller in a monopoly is a price maker.
2. Price leadership is an important feature of oligopoly.
3. Selling cost is the cost of producing the commodity.

Answer:

1. Time
2. True
3. False. Selling cost is the cost of selling a Product.

Question 5.
State the condition and long run equilibrium in a monopoly competitive industry.
Answer:
The long run equilibrium conditions in a monopolistically competitive industry are:
MR = LMC
P = LAC but P > LMC MR = LMC
P = LAC, P > LMC

Question 6.
The diagram below shows the equilibrium condition of a zero cost monopolist. Find out the quantity produced by such a firm, explain

Answer:
The firm will produce oq1 level of output to maximise the profit. Because at this level of output, the firm satisfies a condition that is MR = MC. Since the firm faces zero cost its MR also will be zero. For this equilibrium, MR and MC should be equal. Since MC is zero in all level of output the firm will produce at a level where its MR is zero.

Question 7.
Examine the behaviour of average revenue and marginal revenue of a firm which can sell more units of a good only by lowering the price of that good. Explain with the help of a diagram.
Answer:
monopolist can sell more units of the good only by lowering the price. Therefore AR & MR will be downward sloping. Draws the appropriate diagram.

Question 8.
Categorize the following features under two headings Perfect Competition and Monopolistic Competition. 4 Large Number of Producers, Differentiated products, Some Pricing power, Productive Efficiency in the Long run, Low Barriers, Homogeneous products, Long run Price = MC, Many producers, Zero Barriers, Productive Inefficiency in the Long run, Price Takers, Long run Price >MC.
Answer:
1. Perfect competition

• Large Number of Producers.
• Productive Efficiency in the Long run
• Homogeneous products
• Long run Price = MC
• Zero Barriers
• Price Takers

2. Monopolistic competition

• Differentiated products
• Some Pricing power
• Low Barriers,
• Many producers
• Productive Inefficiency in the Long run
• Long run Price >MC.

Question 9.
Consider the commodities given below. Identify the most likely market situation in which they are produced. Substantiate.

1. Airline industry.
2. Potatoes.
3. Toilet soap.

Answer:

1. Oligopoly – only a few producers
2. Perfectly Competitive Market – large number of producers
3. Monopolistic Competition – Many sellers producing differentiated products

Question 10.
A table related to a particular market is given below:

1. Find AR & MR
2. Identify the market related to the table.
3. Establish the relationship between TR, AR & MR

Answer:
1.

2. Monopoly.

3. relationship between TR, AR & MR

• TR rises and then falls
• AR is always falling but lies above MR
• MR falls and becomes negative

Question 11.
The total revenue equation of a firm is given by the equation, TR = 20Q – 2Q²

1. Calculate TR, AR & MR.
2. Identify the market form related to this equation

Answer:
1. TR = 20Q – 2Q2
\(\begin{aligned}
&A R=\frac{T R}{Q}=\frac{20 Q-2 Q^{2}}{Q}=20-2 Q\\
&\mathrm{MR}=\frac{\delta \mathrm{TR}}{8 \mathrm{Q}}=\frac{\left(20 \mathrm{Q}-2 \mathrm{Q}^{2}\right)}{\mathrm{Q}}=20-4 \mathrm{Q}
\end{aligned}\)

2. Monopoly

Plus Two Economics Non-Competitive Markets Five Mark Questions and Answers

Question 1.
State whether the following statements are true or false. Rewrite the statements if they are wrong.

1. The products in perfect competition are heterogeneous
2. The seller in monopoly is a price maker
3. Price leadership is an important feature of oligopoly.
4. Duopoly is a market situation in which two buyers buy the commodity
5. Selling cost is the cost for producing the commodity.

Answer:

1. False. Products in perfect competition are homogenous
2. True
3. True
4. False. Duopoly is a market situation in which two sellers supply the commodity
5. False. Selling cost is the cost for selling or giving publicity for the commodity

Question 2.
Find odd one out.

1. Single seller, price maker, selling cost, control over supply
2. Fairly large number of firms, product differentiation, selling cost, price maker
3. A few firms, interdependence between firms, no transport cost, indeterminate demand curve
4. Tata steel, Reliance industries, Post and Telegraph

Answer:

1. Selling cost. Others are features of monopoly
2. Price maker. Others are features of monopolistic competition
3. No transport cost. Others are features of oligopoly
4. Post and Telegraph. Others are private sector companies.

Question 3.
Match column B and Q with column A.

Answer:

Question 4.
The market price, quantity and total cost of a firm are given in the following table. Find out.

1. MRandMC
2. Equilibrium price and equilibrium quantity
3. TR, TC and Total profit at equilibrium

Answer:
1.

2. Equilibrium price is Rs. 19 and quantity is 6.

3. At equilibrium
TR= 114
TC = 109
Total profit = 5

Question 5.
Categorize the following into different market forms.

1. Indian Railways
2. Toothpaste
3. Hero Honda
4. KSEB

Answer:

1. Indian Railways – monopoly
2. Toothpaste – monopolistic competition
3. Hero Honda – oligopoly
4. KSEB – monopoly

Question 6.
Prepare a note on price rigidity.
Answer:
Price rigidity is an important feature of oligopoly. Price rigidity means that price will remain rigid without much fluctuation. This is because, price increase by one firm will not be followed by other firms.

However, price reduction by one firm will be followed by other firms, due to this; the firm affecting price change will not get the benefits from the reduction of price. Therefore, no firm will reduce or increase the price. This leads to a situation of price rigidity in the oligopoly markets.

Question 7.
Assume that there are two firms A and B in a duopoly market. Firm B supplies zero output. Firm A realizes that maximum demand in the market is 20 units, and he supplies half of it, i.e., 10 units. Construct a table the different steps showing the quantity supplied by the firms.
Answer:

Question 8.
Classify the statements under the head features of oligopoly market.
Answer:

1. Large no. of buyers and sellers
2. Firm is a price maker
3. Few number of sellers
4. Products may be homogneous or differentiated.
5. There is no interdependence between firms
6. There are no barries to entry
7. Firm is price taker
8. Interdependence between firms
9. Entry restricted
10. Price rigidity prevails oil

Answer:
The features of oligopoly market are given below:

1. Few number of sellers
2. Product may be homogneous or differentiated
3. There are no barriers to entry
4. Interdependence between firms
5. Price rigidity prevails.

Question 9.
Price rigidity is an important feature of oligopoly. Can you explain what is price rigidity.
Answer:
Price rigidity is an important feature of oligopoly market. In oligopoly market, price does not change m easily in response to change in demand. If one firm decides to increase the price to earn high profit and the other firms do not do so, due to increase the price, the demand of product will fall and it causes fall in revenue and profit. Hence it is not rational for any firm of increase the price. Thus in an oligopoly market, price remain rigid.

Question 10.
Suppose that firm A enters in a duopoly market for production of commodity X at zero cost. He finds that the total demand forX in the market is 300 units. When he starts production, firm B enters in market. Find out the profit maximising quantity by each firm.
Answer:
In order to maximise profit each firm will produce 1/3 of the total markerdemand. In one example, total demand in the market is 300 units. Therefore, the profit maximising output is 1/3 x 300 = 100 units.

Question 11.
Identify the market structure.

Answer:

Question 12.
Make pairs.
Price maker, Price leadership, Monopoly, Monopsonist, single buyer, Oligopoly, monopolistic competition, selling cost.
Answer:

• Price maker – Monopoly
• Price leadership – Oligopoly
• Single buyer – Monopsonist
• Selling cost – Monopolistic competition.

Question 13.
The demand curves of different market situations are given below.

1. Identify market situations represented by each demand curve.
2. Give reasons for the different shapes of demand curves in these two market forms.

Answer:
1. Figure (1) represents perfect competition market Figure (2) represents monopoly market.

2. In perfect competition, there are large number of buyers and sellers. Each firm is a price taker and there is uniform price prevailing in the market. Since each unit is sold at uniform price, P = MR = AR in the market. Therefore, demand curve is horizontal straight line. However, in a monopoly market, firm is a price maker. He can vary the price. If he wants to sell more of the product, he need to reduce the price. Therefore, the demand curve is falling downward.

Question 14.
Prepare a note on monopolistic competition.
Answer:
A market structure where the number of firms is large, there is free entry and exit of firms, but the goods produced by them are not homogeneous such a market structure is called monopolistic competition. Its features are as following:

1. There are large number of buyers and sellers.
2. There is free entry and exist in long run.
3. There is product differentiation.

The monopolist produces less and charges a higher price compared to perfect competiton. It is found in the industry where there is large number of sellers, selling differentiated but close substitute products. Monopolistic competition in a commodity market arises due to the commodity being non-homogeneous.

Question 15.
Compare the price and output of a firm under perfect competition and monopolistic competition.
Answer:
A firm under perfect competition is a price taker and have a horizontal demand, but a firm under monopolistic competition is a price maker and faces a demand curve that in downward sloping and elastic. Under perfect competition MR = AR. So the firm produces more output and charge less compared to monopolistic competition. Under monopolistic MR < AR.

Question 16.
Identify the market condition with following feature.

1. Interdependence
2. Price rigidity
3. Entry restriction

Explain why prices are rigid in such market situations.
Answer:
Oligopoly. Under such markets, the price is supposed to be rigid. The reason is that here the firms are interdependent. The actions of every firm will be determined by the actions and reactions of every other firm. If one firm increases the price none other follows. The customers of that firm may switch to other firms. The firm which increased the price may feel a fall in revenue and profit.

On the other hand, if one firm reduces the price everyone else will follow. All firm’s revenue and profit fall. So firms under oligopoly will always try to keep their price rigid.

Question 17.
Two tables are given below.

1. Find TR, AR&MR.
2. There are five variables in each of the above table. Which two variables in both the tables have the same values? Give reasons.
3. The two tables are related to two market forms. Identify the form of market for each table. Give reasons.

Answer:
1.

2. Table 1: Price and AR are same Table 2: Price, AR, and MR are same

3. Table 1: Monopoly market because by reducing price firm sells more
Table 2: Perfect competition. Firm is price takes and P=AR=MR

Question 18.
Does the statement below better describe a firm operating in a Perfectly Competitive market or a firm that is Monopoly?

1. The demand curve faced by the firm is downward sloping.
2. The demand curve and the MR curve are the same.
3. Entry and exit are relatively difficult.
4. Price Taker
5. Price Maker

Answer:

1. Monopoly
2. Perfectly Competitive Market
3. Monopoly
4. Perfectly Competitive Market
5. Monopoly

Plus Two Economics Non-Competitive Markets Eight Mark Questions and Answers

Question 1.
Prepare a seminar paper on ‘Non-Competitive Markets’.
Answer:
Respected teachers and dear friends,
The topic of my seminar paper is noncompetitive markets. As we know there are different kinds of markets depending upon the number of firms, nature of the product, freedom of entry and exit, etc. On the basis, of the above, we name the non-competitive markets as monopoly, monopolistic competition and oligopoly. .

Introduction:
A market structure in which there is a singe seller is called monopoly. A market structure where the . number of firms is large, there is free entry and exit of firms, but the goods produced by them are not homogeneous. Such a market structure is called monopolistic competition. If the market of a particular commodity consists of more than one seller but the number of sellers is few, the market structure is termed oligopoly.

Contents:

1. Monopoly market
2. Monopolistic competition
3. Oligopoly

1. MONOPOLY MARKET:
Monopoly may be defined as a market situation in which there is only a single seller. He controls the entire market. The term monopoly has derived from two Greek words such as ‘mono’ means single and poly means ‘seller’. The meaning of the combined term is single seller. In a boarder sense, a monopolist is single seller of a commodity which does not have close substitutes, e.g. KSEB

Features of Monopoly Market:
Some of the salient features of monopoly are as follows:

1. There is only a single firm producing the product
2. There is no close substitute for the product
3. Entry is denied for other producers
4. Since there is only one seller, the firm and the industry are same
5. The firm under monopoly is the price maker

2. MONOPOLISTIC COMPETITION:
Monopolistic competition is a market characterized by the elements of perfect competition and monopoly. It is a market situation characterized by large number of firms producing various kinds of goods and services. The products of a firm will be different from the products of other firms in terms of size, shape, smell, colour, etc.

Features
The salient features of perfect competition are as follows:
1. Large number of buyers and sellers:
Under monopolistic competition, there exists large number of buyers and sellers. But the number of sellers will be less compared to perfect competition.

2. Product differentiation:
One of the most important characteristic of monopolistic competition is the existence of product differentiation. Each firm has its own product with unique brand names. The products of one firm will be different from the products of other firms in terms of size, shape, smell, color, etc.

3. Freedom of entry and exit:
Under monopolistic competition, there is freedom of entry and exit.

4. Selling cost:
The cost incurred for sales promotion such as advertisement, coupons, gifts, etc. are known as selling cost. Under monopolistic competition, the selling costs would be relatively high.

3. OLIGOPOLY:
The term oligopoly has derived from two terms oligo (small) and poly (seller). Thus oligopoly is a market situation characterized by competition among few sellers. In simple terms, it is a competition among few sellers in the market selling either homogenous or differentiated product. The industries manufacturing car, motorcycle, scooter, etc. are some of the examples for oligopolistic competition.

The main features of oligopolistic competition are as follows:
1. Few sellers:
The number of sellers or producers would be few under oligopolistic competition.

2. Homogneous or differentiated products:
The products sold under oligopolistic competition would be either homogneous (e.g. gas, petrol) or differentiated (e.g. car, scooter)

3. Free entry and exit:
Free entry and exit persist under oligopolistic competition.

4. Selling cost:
Firms spend on advertisement and sales promotion.

5. Interdependence of the firms:
Since the number of firms under oligopoly are few, they are highly interdependent. The action of one firm will certainly have impact on other firms in terms of price, quality of the product, etc.

6. Price leadership:
Some of the firms may emerge as price leaders under oligopoly. The price leader could be the first firm in the industry or the firm with largest number of consumers. The price leader takes important decisions regarding vital decisions such as the price of the product or number of units to be produced in the market, etc.

Conclusion:
Thus it can be concluded that there are three kinds of non-competitive markets. This classification is made on the basis of the number of firms, nature of the product, freedom of entry and exit, etc. In contrast to perfect competition, we find that these market forms are more realistic.

Question 2.
Prepare a table to show the distinction between monopoly, monopolistic competition, and oligopoly. Major points of distinction are given below in the table.

Answer:

Question 3.
If the market of a particular commodity consists of more than one seller but the number of sellers is few, the market structure is termed oligopoly. The special case of oligopoly where there are exactly two sellers is termed duopoly. We shall explain the different ways in which the oligopoly firms may behave.

1. Firstly duopoly firms may collude together and decide not to compete with each other and maximize total profits of the two firms together. In such a case the two firms would behave like a single monopoly firm that has two different factories producing the commodity.

2. Secondly, take the case. of a duopoly where each of the two firms decide how much quantity to produce by maximizing its own profit assuming that the other firm would not change the quantity that it is supplying. We can examine the impact using a simple example where both the firms have zero cost.

3. Thirdly, some economists argue that oligopoly market structure makes the market price of the commodity rigid, i.e., the market price does not move freely in response to changes in demand.

Question 4.
Name important non-competitive markets and give the meaning of them.
Answer:
The important forms of non-competitive markets also:

1. Monopoly
2. Monopolistic competition
3. Oligopoly

1. Monopoly:
A monopoly is a market situation in which there is a single seller of the commodity and no close substitutes of the commodity are available. The single seller can influence the price by varying his sales.

2. Monopolistic Competition:
Monopolistic competition is a market situation in which both the monopolistic element and the competitive elements are present. Its basic features are large number of buyers and sellers in the market and existence of differentiated products.

3. Oligopoly:
Oligopoly is market situation in between monopolistic competition and monopoly. In this market form, there are only a few sellers of the commodity and each seller has a substantial share in the market.

Question 5.
The diagram below shows the level of output produced and price charged in monopoly and perfect competition.

1. Identify the levels of output and price charged in monopoly and perfect competition, explain.
2. Critically evaluate the merits and demerits of perfect competition.

Answer:
1. A firm, if it is under monopoly, will produce when its MR = MC and will charge a price which is equal to AR. It produces oq level of output and charges a price op. But if it is in perfect competition if the market would

2. Confirmed to monopoly perfect competition would charge higher prices and produce less quantity. It is argued that the monopoly firms benefit themselves at the cost of consumers. The monopolist may get a profit even in tire long run and the consumers pay more and get less quantity.

But it is another argument. The profit made by the monopolist would be used for research and development and it may be useful for society in the long run in terms of new technology and new products. Moreover, due to the economies of scale, the cost of the monopolist may be much lower than the cost of a firm under perfect competition.

Plus Two Economics Chapter Wise Questions and Answers