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Karnataka 2nd PUC Economics Question Bank Chapter 6 Non-Competitive Markets
2nd PUC Economics Non-Competitive Markets One Mark Questions and Answers
1. Choose The Correct Answer.
Question 1.
A Market structure which produces heterogeneous products is called
(a) Monopoly
(b) Monopolistic competition
(c) Perfect competition
(d) None of the above
Answer:
(b) Monopolistic competition
Question 2.
The change in TR due to the sale of an additional unit is called
(a) Total Revenue
(b) Average Revenue
(c) Marginal Revenue
(d) Revenue
Answer:
(c) Marginal Revenue
Question 3.
When the price elasticity of demand is more than one, MR has a
(a) Negative value
(b)Decreasing value
(c) Constant value
(d) Positive value
Answer:
(d) Positive value
Question 4.
Profit =
(a) P x Q
(b) TR – TC
(c) TFC + TVC
(d) TR/Q
Answer:
(d) TR – TC
Question 5.
In which form of market there is product differentiation?
(a) Monopoly
(b) Oligopoly
(c) Monopolistic Competition
(d) Perfect Competition
Answer:
(c) Monopolistic Competition
Question 6.
Which one of the following statement is not a characteristic of monopolistic competition?
(a) ease of entry into the industry.
(b) product differentiation
(c) a relatively large number of sellers
(d) homogeneous product.
Answer:
(d) homogeneous product.
Question 7.
All of the following are characteristics of a monopoly, except……………..
(a) there is a single firm.
(b) The firm is a price-taker
(c) the firm produces a unique product
(d) the existing of some advertising
Answer:
(b) The firm is a price-taker
Question 8.
A monopolist is a price……………..
(a) Maker
(b) Taker
(c) Adjuster
(d) none of these
Answer:
(a) Maker
Question 9.
Market which has a few large firms is……………..
(a) Monopsony
(b) Duoploy
(c) Oligopoly
(d) Monopoly
Answer:
(c) Oligopoly
Question 10.
Monopolist can determine……………..
(a) Price
(b) output
(c) a only
(d) both a and b
Answer:
(d) both a and b
Question 11.
Which of the following is not a characteristic of monopolistic competition?
(a) Ease of entry into the industry
(b) Product differentiation
(c) A relatively large number of sellers
(d) A homogenous product
Answer:
(a) Ease of entry into the industry
Question 12.
All of the following are characteristics of a monopoly except…………………
(a) there is a single firm
(b) the firm is a price taker
(c) the firm produces a unique product
(d) the existence of some advertising
Answer:
(b) the firm is a price taker
Question 13.
Oligopolistic industries are characterized by …………………
(a) a few dominant firms and substantial barriers to entry
(b) a few large firms and no entry barriers
(c) a large number of small firms and no entry barriers
(d) one dominant firm and low entry barriers
Answer:
(a) a few dominant firms and substantial barriers to entry
Question 14.
For price-taking firm
(a) marginal revenue is less than price
(b) marginal revenue is equal to price
(c) marginal revenue is greater than price
(d) the relationship between marginal revenue and price is indeterminate
Answer:
(b) marginal revenue is equal to price
Question 15.
Monopolistic competition differs from perfect competition primarily because
(a) in monopolistic competition, firms can differentiate their products.
(b) in perfect competition, firms can differentiate their products.
(c) in monopolistic competition, entry into the industry is blocked
(d) in monopolistic competition, there are relatively few barriers to entry
Answer:
(a) in monopolistic competition, firms can differentiate their products.
Question 16.
In which form of the market structure is the degree of control over the price of its product by a firm very large?
(a) Monopoly
(b) Imperfect Competition
(c) Oligopoly
(d) Perfect competition
Answer:
(a) Monopoly
Question 17.
A market structure in which many firms sell products that are similar but not identical is known as ……………..
(a) Monopolistic competition
(b) monopoly
(c) perfect competition
(d) Oligopoly
Answer:
(a) Monopolistic competition
Question 18.
Which of the following is not a characteristic of a monopolistically competitive market?
(a) Free entry and exit
(b) Abnormal profits in the longrun
(c) Many sellers
(d) Differentiated products
Answer:
(b) Abnormal profits in the longrun
Question 19.
Price discrimination is one of the features of……………..
(a) monopolistic competition
(b) monopoly
(c) perfect competition
(d) oligopoly
Answer:
(b) monopoly
Question 20.
The firm and the industry are one and the same in…………………
(a) Perfect competition
(b) Monopolistic competition
(c) Duopoly
(d) Monopoly
Answer:
(d) Monopoly
Question 21.
The demand curve of a monopoly firm will be…………………
(a) Upward sloping
(b) Downward sloping
(c) Horizontal
(d) Vertical
Answer:
(b) Downward sloping
II. Fill in the Blanks
1. The monopoly firm’s decision to sell a larger quantity Is possible only at …………..
Answer:
Lower Price
2. Competitivebehaviorand competitive market structure are m general ………….. related.
Answer:
Inversily
3. In monopoly market, the goods which are sold have no…………..
Answer:
Substitutes
4. TR =…………..
Answer:
P x Q
5. The Revenue received by the firm per unit of commodity sold is called…………..
Answer:
Average Revenue
6. With the zero production cost, when the total revenue of monopoly firm is maximum, the profit is…………..
Answer:
Maximum
7. …………..is the founding founder of Modern Economics.
Answer:
Downward
8. Great Depression took place in the …………..year.
Answer:
Monopoly
9. …………..published the book ” The General Theory of Employment, Income and Money”.
Answer:
One
10. The expenses which raise productive capacity are examples of ………….. expenditure.
Answer:
Zero
11. …………..is considered as the fourth important sector in an economy.
Answer:
Monopoly
12. SEBI stands for…………..
Answer:
Monopolistic Competition
13. …………..economy is an economy where production activities are mainly carried out by capitalist
enterprises of private enterprises.
Answer:
Oligopoly
14. Theory of Multiplier employment is an example of……………
Answer:
Price rigidity
III. Answer the following questions in a sentence/word.
Question 1.
What is monopoly
Answer:
Monopoly market refers to a market where a single seller or a firm controls the supply of the commodity.
Question 2.
Write the equation of a demand function.
Answer:
The equation of a demand function is q= a – bp or q = 20 – 2p.
Question 3.
Give the meaning monopolistic competition.
Answer:
Monopolistic Competition is a type of imperfect competition, in which there are many sellers selling differentiated products but not perfect substitutes.
Question 4.
Give the meaning of oligopoly market.
Answer:
Oligopoly is a market structure in which there are a few firms or sellers in the market produc¬ing or selling a product.
Question 5.
What is duopoly?
Answer:
Duopoly is the market situation where there are only two firms operating in the market.
2nd PUC Economics Non-Competitive Markets Two Marks Questions and Answers
V. Answer the following Questions in 4 Sentences.
Question 1.
Mention the requirements of a monopoly market structure.
Answer:
A monopoly market structure requires thatthere is a single producer of a particular commodity; no other commodity works as a substitute for this commodity and for this situation to persist over time, entry into the industry by another firm is prevented.
Question 2.
State the meaning of average revenue and marginal revenue.
Answer:
Average revenue is the revenue received by the firm per unit of commodity sold. Marginal revenue refers to the additional revenue received by selling one more unit of a commodity.
Question 3.
State the relationship between marginal revenue and price elasticity of demand.
Answer:
The relationship between MR and price elasticity of demand is sufficient to notice only one aspect that is price elasticity of demand is more than 1 when the MR has a positive value, and _ becomes less than the unity when MR has a negative value.
Question 4.
Write the meaning of monopolistic competition and give an example.
Answer:
Monopolistic competition is 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. The example is biscuit producing firms
Question 5.
Write the features of monopoly.
Answer:
The features of monopoly are,
(a) Single Seller
(b) No close substitutes
(c) High barriers to entry
(d) Price Maker
(e) No difference between firm and industry
(f) Price Discrimination or uniform price
2nd PUC Economics Non-Competitive Markets Four Marks Questions and Answers
V. Answer the following Questions in 12 Sentences.
Question 1.
What is market demand curve? Draw a market demand curve for a monopoly firm.
Answer:
The market demand curve is the diagram shows the quantities that consumers as a whole are
willing to purchase at different prices.
If the market price is at p0, consumers are willing to purchase the quantity q0. On the other hand, if the market price is at the lower level p1 , consumers are willing to buy a higher quantity q1.
That is, price in the market affects the quantity demanded by the consumers. The monopoly firm’s decision to sell a larger quantity is possible only at a lower price.
For the monopoly firm, the market demand curve expresses the price that consumers are willing to pay for different quantities supplied.
Question 2.
Calculate TR and MR from the following table.
Answer:
Question 3.
Briefly explain the monopolistic competitive market.
Answer:
Meaning: Monopolistic Competition is a type of imperfect competition, in which there are many sellers selling differentiated products but not perfect substitutes.
Features of Monopolistic Competition:
1. Existence of large number of buyers and sellers: There is existence of large number of firms in this market. Each firm decides its own price output policy without considering the reactions of rival firms. Similarly, the number of buyers is fairly large in this market.
2. Product differentiation: Product differentiation may be real or imaginary. Real differentiation is done through differences in the materials used, design, colour, etc. imaginary differences maybe created through advertisement, brand name, etc. Therefore, products sold in such a market are heterogeneous in nature.
3. Selling Costs: In this market the firms tries to make differences in their products. This is done through advertisement, propaganda, attracting packaging, etc, for which cost is included. Such cost is known as selling cost. Selling costs are those expenses of the producer incurred on marketing of goods produced.
4. Free entry and free exit of firms: In this market there are no restrictions on entry or exit from the market. Product differentiation increases entry of new firms into the industry. Entry of new firms leads to production of goods which are very close substitutes for the existing brands of the product.
5. Downward Sloping demand curve: The demand curve of a firm under monopolistic competition slopes downwards to the right. A reduction in price leads to increase in sales and vice-versa.
6. Price Maker: In this market a firm fixes its own price of its product. He firms are differentiated on their brand names; therefore each monopolistic firm enjoys a monopolist position. This is because no other firm can produce and sell its products under the same brand.
Question 4.
Show the relationship between average revenue and marginal revenue of a monopoly market with the help of diagrams.
Answer:
The relationship between AR and MR can be explained with the help of following diagrams.
The diagram shows that the MR curve lies below the AR curve it is because the values of MR at any level of output are lower than the corresponding values of AR.
We can conclude that if the AR curve is falling steeply, the MR curve is far below the AR curve. On the other hand, if the AR curve is less steep, the vertical distance between the AR and MR curves is smaller.
Diagram (a) shows a flatter AR curve while Diagram (b) shows a steeper AR curve. For the same units of the commodity, the difference between AR and MR in diagram (a) is smaller than the difference in diagram (b).
Question 5.
Mention the three forms of imperfectly competitive market.
Answer:
The three forms of imperfectly competitive market are,
(a) Monopoly (b) Monopolistic Competition (c) Oligopoly
Question 6.
What is selling cost? What is its main objective?
Answer:
Selling costs are those expenses of the produces incurred on marketing of goods produces. The objective is to attach a particular consumer to a particular product.
Question 7.
A monopoly firm has a total fixed cost of ₹ 100 and has the following demand schedule:
Find the short run equilibrium quantity, price and total profit. What would be the equilibrium in the long run? In case the total cost was ₹ 1000, describe the equilibrium in the short run and in the long run.
Answer:
The total cost of the monopolist firm is zero, the profit will be maximum where TR is maximum. As, in the above case, TR is maximum at the 6th unit of output.
Profit of the firm = 300, and Short-run equilibrium price = ₹ 50
Profit = TR – TC, Profit = 300 – 0 = 300
As per the case if the total cost is ₹ 1000, then 300-1000 = -700
Therefore firm is earning loss in the short run and it will stop its production in the long run.
Question 8.
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 the information to calculate the following.
(a) The MR and MC schedules
(b) The quantities for which the MR and MC are equal]
(c) The equilibrium quantity of output and the equilibrium price of the commodity
(d) The total revenue, total cost and total profit in equilibrium.
(b) The quantities for which MR and MC equal are 6
(c) The equilibrium quantity of output is 6 and the equilibrium price of the commodity is ₹ 19
(d) The total revenue is 114, total cost is 109 and total profit is TR -TC i.e. 114-109 = ₹ 5 in equilibrium.
Question 9.
Make a difference between perfect competition, monopoly and monopolistic competition
Answer:
Difference among perfect competition, monopoly and monopolistic competition
2nd PUC Economics Non-Competitive Markets Six Marks Questions and Answers
VI. Answer the following Questions in 20 Sentences.
Question 1.
Explain the short run equilibrium of a monopoly firm with the help of the simple case of zero cost
Answer:
Here we analyse the profit maximizing behaviour to determine the quantity produced by a monopoly firm and price at which it is sold.
We shall analyse the simple case of a monopolist bearing Zero costs to determine the amount of a good sold and price at which it is sold.
In the above diagram there are TR, AR and MR curves and on OX axis we measure output and on OY axis we measure revenues.
The profit received by the firm equals the revenue received by the firm minus the cost incurred, that is, Profit = TR – TC.
Since in this case TC is zero, profit is maximum when TR is maximum. This, as we seen earlier, occurs when output is of 10 units. This is also the level when MR equals zero. The amount of profits is given by the length of the vertical line segment from ‘a’ to the horizontal axis.
The price at which this output will be sold id the price that the consumers as a whole are willing to pay. This is given by the market demand curve ‘D’. At output level of 10 units, the price is ₹ 5 Since the market demand curve is AR curve for the monopolist firm, ₹ 5 is the AR received by the firm. The total revenue is given by the product of AR and quantity sold, i.e. ₹ 5 x 10 units = ₹ 50. This is depicted by the area of the shaded rectangle.
Question 2.
Explain the short run equilibrium of a monopolist firm, when the cost of production is positive by using TR & TC curves with the help of a diagram.
Answer:
Monopolist, like a perfect competitive firm, tries to maximize his profit by not holding any stock of output produced.
The short run equilibrium of a monopoly market can be analysed under the following two different situations:
- Simple situation when the cost of production is zero.
- A situation when the cost of production is positive.
When the cost of production is positive {cost is greater than zero}:
Generally production cost is positive in a monopoly market situation. This can be studies using the following two approaches:
Total Revenue and Total Cost Approach:
According to this approach, a monopoly firm attains its equilibrium at the point here the difference between the TR and TC is maximum. At this point monopoly firm reaches equilibrium with the maximum profit.
Diagrammatic representation,
In the above diagram, on OX axis we measure Quantity and on OY axis we measure TR, TC and Profit. TC curve represents Total Cost. TR curve represents Total Revenue, n curve represents profit curve.
In the diagram we find bd distance is maximum. Thus, the firm attains equilibrium at point ‘b’. The profit earned by the monopolist at this point equals vertical distance between bd and equilibrium level of output is OQ.
At the quantity Q1 and Q2, TR = TC. Here a and c are Breakeven Points. TR curve and TC curve intersect at points a and c, and at this level of output Q and Q2 profit is zero, where profit curve intersects the x-axis at Q1 and Q2 points. Before Q1 and Q2 the firm suffers losses, because TC > TR. Therefore, profit curve If is in negative zone.
Between product level Q1 and Q2, TR > TC. Then profit curve difference between TR and TC is at maximum. This is the equilibrium of a firm in short run.
Question 3.
Explain how the firms behave in oligopoly.
Answer:
Oligopoly is a market in which there are a few firms or sellers in the market producing or selling a product.
(a) Given that there are a few firms, each firm is relatively large when compared to the size of the market. As a result each firm is in a position to affect the total supply in the market and thus influence the market price.
(b) Firms in oligopoly could decide to ‘collude’ with each other to maximize collective profits. The quantity supplied collectively by the industry and the price charged are the same as a single monopolist would have done.
(c) Firms in oligopoly could decide to compete with each other. For example, a firm may lower its price a little below the other firms, in order to attract their customers. Obviously, the other firms would react by doing the same. So the market price keeps falling as long as firms keep undercutting each other’s prices.
Question 4.
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 the information to calculate the following
(a) The MR & MC schedules.
(b) The quantity for which the MR & MC are equal.
(c) The equilibrium quantity of output and the equilibrium price of the commodity.
(d) The total revenue, Total cost and Total profit in equilibrium.
Answer:
(b) The quantities for which MR and MC equal are 6
(c) The equilibrium quantity of output is 6 and the equilibrium price of the commodity is ₹19
(d) The total revenue is 114, total cost is 109 and total profit is TR -TC i.e. 114-109 = ₹5 equilibrium.