Part -A

Choose the best options

Question 1.
In the real world what type of market we see?
(a) Imperfect
(b) Perfect
(c) Monopoly
(d) Oligopoly
Answer:
(a) Imperfect


Question 2.
First condition for equilibrium of the firm _______
(a) AC = AR
(b) AC = MC
(c) MC = MR
(d) AR = MR
Answer:
(c) MC = MR

Question 3.
How many types of price discrimination under monopoly?
(a) Three
(b) Two
(c) Five
(d) Seven
Answer:
(a) Three

Question 4.
Indian railways is an example of _______ competition.
(a) Perfect competition
(b) Monopoly
(c) Monopolistic competition
(d) Oligopoly
Answer:
(b) Monopoly

Question 5.
Monopoly power achieved through patent right is called ………………………..
(a) Duopoly
(b) Oligopoly
(c) Legal monopoly
(d) Monopolistic competition
Answer:
(c) Legal monopoly

Question 6.
Differentiated products are seen in _______
(a) Perfect competition
(b) Monopoly
(c) Monopolistic
(d) Monopsony
Answer:
(c) Monopolistic

Question 7.
Under perfect competition, the firms are producing …………………………
(a) Firm
(b) Sales
(c) Public sector
(d) Homogeneous
Answer:
(d) Homogeneous


Question 8.
In perfect competition, short run equilibrium is determined by
(a) MC = MR
(b) MC = AC
(c) MR = AR
(d) AR = AC
Answer:
(a) MC = MR

Question 9.
A firm and Industry are one and the same under ……………………
(a) Perfect competition
(b) Duopoly
(c) Oligopoly
(d) Monopoly
Answer:
(d) Monopoly

Question 10.
Group behaviour is seen in _______
(a) Perfect competition
(b) Monopoly
(c) Monopolistic competition
(d) Oligopoly
Answer:
(d) Oligopoly

Question 11.
When the monopoly will be an equilibrium?
(a) MC = MR
(b) AC = AR
(c) AC = MR
(d) MC = AR
Answer:
(a) MC = MR


Question 12.
_______ degree of price discrimination wipes out the entire consumer’s surplus.
(a) First
(b) Second
(c) Third
(d) None
Answer:
(a) First

Question 13.
In monopolistic competition, the demand curve is
(a) More elastic
(b) Inelastic
(c) Less elastic
(d) None
Answer:
(a) More elastic

Question 14.
Government controls monopoly by _______
(a) Taxation
(b) Legal methods
(c) Both
(d) None
Answer:
(c) Both

Question 15.
The important feature of non-price competition is _______
(a) Product differentiation
(b) Advertisement
(c) Sales promotion
(d) All the above
Answer:
(d) All the above

Question 16.
The concept of Imperfect Competition was
(a) J.M. Keynes
(b) Irving Fisher
(c) Marshall propounded by
(d) Joan Robinson
Answer:
(d) Joan Robinson

Question 17.
Identify the wrong statement about the features of Duopoly.
(a) There is product differentiation
(b) They fix the price for their product to maximise their profit
(c) Each seller is fully aware of his rival’s motive and actions
(d) Both sellers may collude regarding the sale of commodity.
Answer:
(a) There is product differentiation

Choose the odd one out

Question 5.
(a) Personal
(b) Geographical
(c) On the basis of use
(d) Price taker
Answer:
(c) On the basis of use

Question 6.
(a) Individual behaviour
(b) Few large firms
(c) Group behaviour
(d) Price rigidity
Answer:
(a) Individual behaviour


Question 7.
(a) Market period
(b) Short period market
(c) Very long period market
(d) Whole sale market
Answer:
(d) Whole sale market

Choose the incorrect statement

Question 8.
In perfect competition
(a) There are large number of buyers and sellers
(b) Free entry and exit of firm
(c) Price competition is essential
(d) Independent price policy
Answer:
(c) Price competition is essential

Question 9.
(a) In a market there is no exchange of goods.
(b) Commodities will be bought and sold in market.
(c) In market prices are agreeable to buyer and seller.
(d) In market there are buyer and seller of a commodity.
Answer:
(a) In a market there is no exchange of goods.

Analyse the reason for the following 

Question 10.
Assertion (A) : Perfect competition is that no one is big enough to have any appreciable
influence over market price.
Reason (R) : Perfect competition is a market situation where there are infinite number of sellers.
(a) Both (A) and (R) are true, (R) is the correct explanation of (A)
(b) Both (A) and (R) are true, (R) is not the correct explanation of (A)
(c) Both (A) and (R) are false.
(d) (A) is true but (R) is false.
Answer:
(a) Both (A) and (R) are true, (R) is the correct explanation of (A)

Question 11.
Assertion (A) : At equilibrium MC cuts MR from below.
Reason (R) : MC cuts MR at two points.
(a) Both (A) and (R) are true, (R) is the correct explanation of (A)
(b) Both (A) and (R) are true, (R) is not the correct explanation of (A)
(c) (A) is true but (R) is false.
(d) (A) is false but (R) is true.
Answer:
(b) Both (A) and (R) are true, (R) is not the correct explanation of (A)


Question 12.
Assertion (A) : In monopoly there exist price discrimination.
Reason (R) : A monopolist is a price maker.
(a) Both (A) and (R) are true, (R) is the correct explanation of (A)
(b) Both (A) and (R) are false
(c) (A) is true but (R) is false.
(d) (A) is false but (R) is true.
Answer:
(a) Both (A) and (R) are true, (R) is the correct explanation of (A)

Fill in the blanks with suitable option given below 

Question 15.
Supply curve in the very short period is ________
(a) Horizontal
(b) Slopes downward
(c) Slopes upward
(d) Vertical
Answer:
(d) Vertical

Question 16.
Differentiated products are seen in ________
(a) Perfect competition
(b) Monopoly
(c) Monopolistic competition
(d) Monopsony
Answer:
(c) Monopolistic competition


Question 17.
Government controls monopoly by ________
(a) Taxation
(b) Legal method
(c) Both
(d) None
Answer:
(c) Both

Choose the best option 

Question 18.
________ classified market based on time
(a) Marshall
(b) Adam smith
(c) Chamberlin
(d) Hicks
Answer:
(a) Marshall

Question 19.
In monopolistic competition the demand curve is
(a) Inelastic
(b) More elastic
(c) Less elastic
(d) None
Answer:
(b) More elastic

Question 20.
The important feature of non-price competition is ________
(a) Product differentiation
(b) Advertisement
(c) Sales promotion
(d) All the above
Answer:
(d) All the above

Part – B

Answer the following questions in one or two sentences

Question 1.
Define duopoly?
Answer:
In a duopoly, there are only two sellers who are completely independent and no agreement exists between them.

Question 2.
Define “ Imperfect competition”?
Answer:
Imperfect competition is a competitive market situation where there are many sellers, but they are selling heterogeneous (dissimilar) goods as opposed to the perfect competitive market scenario. As the name suggests, competitive markets are imperfect in nature.

Question 3.
Classify market based on time.
Answer:

  1. Very short period market (or) Market period.
  2. Short period market
  3. Long period market
  4. Very long period market (or) Secular period market.

Question 4.
How is market classified based on the quantify of a commodity?
Answer:

  1. Whole-sale market
  2. Retail market


Question 5.
How can you classify market based on competition ?
Answer:

  1. Perfect competition market.
  2. Imperfect competition market which comprises monopoly, monopolistic competition, duopoly, oligopoly etc.

Question 6.
Define long run average cost curve.
Answer:
In the long run all the factors are variable. The LAC curve is an envelope curve as it contains a few average cost curves. It is a flatter ‘U’ shaped one. It is also called as planning curve.

Question 7.
Write a note imperfect competition.
Answer:
This concept was introduced by Joan Robinson and E.H.Chamberlin. Imperfect competition is a competitive market situation where there are many sellers, but they are selling heterogeneous goods. Competitive markets are imperfect in nature.

Question 8.
Explain monopoly.
Answer:
‘Mono’ refers to a single and ‘poly’ to seller. In this way, monopoly refers to a market situation in which there is only one seller of a commodity. There is no scope for competition.

Question 9.
What is dumping ?
Answer:
Dumping refers to practice of the monopolist charging higher price for his product in the local market and lower price in the foreign market. It is called as ‘International price discrimination’.

Question 10.
What is monopsony ?
Answer:
Monopsony is a market structure in which there is only one buyer of a good or service.

Question 11.
What is Bilateral monopoly ?
Answer:
If a single producer of a product faces a single buyer of that product, then it is called as bilateral monopoly.

Question 12.
What are the conditions for short, run and long-run equilibrium in the monopolistic competition ?
Answer:
Short – run equilibrium : MC = MR
Long – run equilibrium has two conditions : MC = MR and AC = AR

Question 13.
Give example for perfect competition.
Answer:

  1. Online ticket auctions.
  2. Truck farming
  3. Salt
  4. Gravel
  5. Garage sales
  6. Online sales in general

Question 14.
What is oligopoly ?
Answer:
Oligopoly is a market situation in which there are a few firms selling homogeneous or differentiated products.

Part – C

Answer the following questions in One Paragraph

Question 1.
Explain the types of markets based on area.
Answer:
The market is classified not only on its geographical spread but also on the nature of the goods exchanged.
1. Local market:
It refers to the products or services which are sold and bought in the place of their production. (Eg.) Fruits, Vegetables etc.

2. Provincial market:
It arises when products or services are sold and bought in a restricted circle. (Eg.) : Provincial newspaper.

3. National market:
It arises when products and services are sold and bought throughout a country. (Eg.) Tea, Coffee, Cement etc.

4. International market:
It arises when products and services are sold and bought at the world level. (Eg.) Petrol, Gold etc.

Question 2.
What is the Duopoly and the characteristics of Duopoly?
Answer:
Duopoly is a special case of the theory of oligopoly in which there are only two sellers. Both the sellers are completely independent and no agreement exists between them. Even though they are independent, a change in the price and output of one will affect the other, and may set a chain of reactions. A seller may, however, assume that his rival is unaffected by what he does, in that case he takes only his own direct influence on the price.

Characteristics of Duopoly:

  1. Each seller is fully aware of his rival’s motive and actions.
  2. Both sellers may collude (they agree on all matters regarding the sale of the commodity).
  3. They may enter into cut-throat competition.
  4. There is no product differentiation.
  5. They fix the price for their product with a view to maximising their profit.
  6. Describe the features of monopolistic competition.

Features of monopolistic competition:

  1. There are large number of buyers and many sellers.
  2. Firms under monopolistic competition are price makers. They set their own prices.
  3. Firms produce differentiated products. It is the key element of monopolistic competition.
  4. There is a free entry and exit of firms.
  5. Firms compete with each other by incurring selling cost or expenditure on sales promotion of their products.
  6. Non – price competition is an essential part of monopolistic competition.
  7. A firm can follow an independent price policy.

Question 3.
Classify markets based on quantity of the commodity.
Answer:
1. Whole-sale market:
It is for bulk selling and buying of goods. The price is likely to be low compared to retail market. (Eg.) Clothing, Grocery etc.

2. Retail market:
It is the market for commodities in small quantities .(Eg.) Clothing, Vegetable etc.


Question 4.
Explain total cost curve approach.
Answer:
In the TC – TR approach, profit is obtained by a firm, through the difference between the TC and the TR.
Equilibrium is obtained at the point where maximum difference between the TC and TR occurs.


Question 5.
State the hvo conditions for equilibrium using marginal curve approach.
Answer:


1. MC = MR
A rational seller will not be in equilibrium at output level 1, though MC = MR at that point. He continues his production till 5 units where MC < MR. Beyond 5 units of Q, MC > MR where the seller incurs loss. So condition for equilibrium MC – MR. It is a necessary but not a sufficient condition.

2. MC cuts MR curve from below (Sufficient conditions):
MC curve is ‘U’ shaped. MR cuts MC both from above (at point A) and also from below (at point B). Only at point B the equilibrium condition is fulfilled.

Thus for equilibrium under all market situations the two conditions are MC = MR and MC cuts MR from below.

Question 6.
Explain the features of monopoly.
Answer:

  1. There is a single producer / seller of a product.
  2. The product of a monopolist is unique and has no close substitute. There is strict barrier for entry of any new firm.
  3. The monopolist is a price – maker.
  4. The monopolist earns maximum profit / abnormal profit.

Question 7.
Explain the sources of monopoly power.
Answer:
1. Natural monopoly :
Ownership of the natural raw materials. (Eg.) Gold mines (Africa)

2. State monopoly :
Single supplier of some special services. (Eg.) Railways in India

3. Legal monopoly :
A monopoly firm can get its monopoly power by getting patent rights, trade mark from
the government.


Question 8.
Explain the features of monopolistic competition.
Answer:

  1. There are large number of buyers and sellers.
  2. Firms under monopolistic competition are price makers.
  3. They produce differentiated products.
  4. There is a free entry and exit of firms.
  5. Finns compete with each other by incurring selling cost or expenditure on sales promotion.
  6. Non-price competition is an essential part of monopolistic competition.
  7. A firm can follow an independent price policy.

Question 9.
Explain the types of price discrimination.
Answer:
1. Personal :
Different prices are charged for different individuals.
(Eg.) Tickets at concessional rate to the senior citizens in railways.

2. Geographical:
Different prices are charged at different places for the same product.
(Eg.) A book sold within India at a price is sold in a foreign country at lower price.

3. On the basis of use :
Different prices are charged according to the use of a product.
(Eg.) TNEB charges lower rate for domestic use of electricity and higher rate for commercial uses.

Part – D

Answer the following questions in about a page

Question 1.
Explain long-run equilibrium in perfect competition.
Answer:
In the long run, all the factors are variable.
The LAC curve is an envelope curve as it contains a few average cost curves.
It is a flatter ‘U’ shaped one. It is also known as planning curve.

  1. The firms will earn only normal profit.
  2. All the firms in the market are in equilibrium. So entry and exit of a firm is not possible.

A firm under perfect competition in the long run is a price-taker. It takes the price of the product from the industry. And it superimposes its cost curves on the revenue curves.

Long run equilibrium is at minimum point of LAC. In the diagram AC = AR, at equilibrium E price is 8 and output is 500. At this point, the profit of the firm is only normal.

The condition for long run equilibrium of the price is.
Price = AR = MR = Minimum AC. At this equilibrium.

  1. SAC > LAC
  2. Long run equilibrium price is lower than short run equilibrium price.
  3. Long run equilibrium quantity is larger than short run equilibrium quantity.

Question 2.
Describe the wastes of monopolistic competition?
Answer:
Wastes of Monopolistic Competition:
Generally there are five kinds of wastages under monopolistic competition.
1. Excess capacity:

  • Un-utilized capacity is the difference between the optimum output that can be produced and the actual output produced by the firm.
  • In the long run, a monopolistic firm produces delibourately output which is less than the optimum output that is the output corresponding to the minimum average cost.
  • This leads to excess capacity which is actually as waste in monopolistic competition.

2. Unemployment:

  • Under monopolistic competition, the firms produce less than optimum output.
  • As a result, the productive capacity is not used to the fullest extent.
  • This will lead to unemployment of human resources also.

3. Advertisement:

  • There is a lot of waste in competitive advertisements under monopolistic competition.
  • The wasteful and competitive advertisements lead to high cost to consumers.

4. Too many varieties of Goods:

  • The goods differ in size, shape, style and colour. A reasonable number of varieties would be sufficient.

5. Inefficient firms:
Under monopolistic competition, inefficient firms charge prices higher than their marginal cost. Efficient firms cannot drive out inefficient firms.


Question 3.
Explain long-run equilibrium in perfect competition.
Answer:
Similarities :

  1. The motive of both the type of market is profit maximisation.
  2. Condition for equilibrium is MC = MR

Dissimilarities :

Perfect Competition:

  1. Price taker. As the contribution of a single seller is less he cannot determine the price
  2. At equilibrium MC = MR = AR (Price)
  3. AR curve is perfectly elastic and horizontal to X – axis. MR curve is equal to AR and coincides with AR. AR = MR
  4. Equilibrium is attained at increasing marginal cost condition.
  5. In the short – run the firm earns super normal profit. In the long run, attracted by super-normal profit new firms enter the industry, which results in normal profit.
  6. The firms produce optimum quantity of output.
  7. Price discrimination is not possible, because of the perfectly elastic demand curve.
  8. Output is maximum and price is minimum.
  9. Possibility for consumer’s surplus.

Monopoly:

  1. Price maker. As the firm and industry remains the same, producer fix price for his product.
  2. At equilibrium MC = MR < AR (Price)
  3. AR curve is a downward sloping curve. MR falls below AR.
  4. Equilibrium can be attained during increasing, decreasing and constant marginal cost condition.
  5. In both short-run and long-run the firm earns super-normal profit because of the barrier to entry.
  6. The firm produces less than optimum quantity of output.
  7. Price discrimination is possible.
  8. Output is minimum and price is maximum.
  9. As the price is high there is no possibility for consumer’s surplus.

Question 4.
Explain long-run equilibrium of the firm and the group equilibrium in monopolistic competition.
Answer:
In the short run, the firm may earn super normal profit or incur loss. But in the long run, the entry of the new firms in the industry will wipe out the super normal profit earned by the existing firms. The entry of new firms and exit of loss making firms will result in normal profit for the firms in the industry.

In the long run AR curve is more elastic or flatter. Because plenty of substitutes are available.


In the diagram, equilibrium is achieved at point E The equilibrium output is ‘OM’ and the equilibrium price is ‘OP’. AR is ‘MQ’ and MC is also ‘MQ’.

In the long run, the condition for equilibrium is AR = AC And MC = MR. It means that a firm earns normal profit. AR is tangent to the Long run Average Cost (LAC) curve at point ‘Q’.