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CBSE 11th Economics - Non-Competitive Market Book Back Questions

Published on: 06/09/2019

Non-Competitive Market

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Questions:

1 Marks

1 x 1 = 1

Willmonopolistfirmcontinueto produce in the short run if a loss is incurred at the best short run level of output?

Generic 6

1 x 6 = 6

The market demand curve for a commodity and the total cost for a monopoly firm producing the commodity is given by the schedules below. Use information to calculate the following:

Quantity	0	1	2	3	4	5	6	7	8
Price	52	44	37	31	26	22	19	16	13

Quantity	0	1	2	3	4	5	6	7	8
Total cost	10	60	90	100	102	105	109	115	125

(i) The MR and MC schedules
(ii) The quantities for which the MR and MC are equal
(iii) The equilibrium quantity of output and the equilibrium price of the commodity.
(iv) The total revenue, total cost and total profit in equilibrium.

Generic 3

5 x 3 = 15

What is meant by prices being rigid? How can oligopoly behaviour lead to such an outcome?

List the three different ways in which oligopoly firms may behave.

What is the value of MR when the demand curve is elastic?

What is the reason for the long run equilibrium of a firm in monopolistic competition to be associated with zero profit?

Explain why the demand curve facing a firm under monopolistic competition is negatively sloped?

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Answers Key:

1 Marks

1 x 1 = 1

()
If the monopolist firm incurs loss in the short run, it will stop production in the long run.

Generic 6

1 x 6 = 6

(i) Revenue Schedules

Q	P	TR=PxQ	MR=\(\frac{\Delta{TR}}{\Delta{Q}}\)
0	52	0	-
1	44	44	44
2	37	74	30
3	31	93	19
4	26	104	11
5	22	110	6
6	19	114	4
7	16	112	-2
8	13	104	-8

Cost Schedules

Q	TC	MC
0	10	-
1	60	50
2	90	40
3	100	10
4	102	2
5	105	3
6	109	4
7	115	6
8	125	10

(ii) For quantity of 6 units MRis equal to MC.
(iii) Equilibrium quantity of output occurs where MR = MC.
Equilibrium quantity = 6 units
Equilibrium price = Rs.19
(iv) TR = 114
TC = 109
Total profit = TR- TC = 114 - 109 = 5

Generic 3

5 x 3 = 15

(i) Price rigidity refers to a situation in which whether there is change in demand and supply, the price tends to stay fixed.
(ii) In an oligopolistic market firms are in a position to influence the prices.
(iii) However, they stick to their prices in order to avoid a price war. If a firm tries to reduce the price the rivals will also react by reducing their prices. So, it will be of no benefit.
(iv) Likewise, if a firm tries to raise the price other firms will not do so. As a result, the firm which intended to raise the price will lose its customers. So, oligopoly behaviour leads to price rigidity in an oligopolistic market.

Oligopoly firm may-
(i) cooperate with each other and formally have a contract or written document of their policies.
(ii) cooperate with each other but have tacit (informal) understanding.
(iii) not cooperate with each other.

When demand curve is elastic (e > 1), MR is positive.
The relationship is given by,
MR=P\(\left( 1-\frac { 1 }{ e } \right) \)
Graphically, it is shown as is given here.

(i) The reason why firm in monopolistic competition earns zero profit in the long run is free entry and exit of firm.
(ii) If firm earns super-normal profits in the short run then new entry will take place in the long run. If the firm is incurring losses in the short run, firm will leave in the long run.
(iii) The result is zero abnormal profits in the long run.

(i) The demand curve of a firm under monopolistic competition is negatively sloped because of product differentiation.
(ii) The product of the sellers are differentiated but close substitutes of one another.
(iii) Each seller has some degree of monopoly power of 'Making' the price. But since there are many close substitutes available, the result is downward sloping and elastic demand curve.