Rajasthan Board RBSE Class 12 Economics Chapter 12 Other Forms of Markets
RBSE Class 12 Economics Chapter 12 Practice Questions
RBSE Class 12 Economics Chapter 12 Multiple Choice Questions
In monopoly market there are:
(a) Many sellers
(b) Few sellers
(c) One seller
(d) Two sellers
Who gave the concept of monopolistic competition?
(a) Prof. E.F. Chamberlin
(b) Mrs. Joan Robinson
(c) Edwin Cannan
(d) A. Marshall
Which one is not a characteristic of oligopoly?
(b) Price Rigidity
(c) Indeterminate demand curve
(d) One seller
What type of goods are produced in monopoly market?
(d) All of these
Elasticity of demand for monopolists demand curve is:
(a) Less than one (e < 1)
(b) More than one (e > 1)
(c) e = 1
RBSE Class 12 Economics Chapter 12 Very Short Answer Type Questions
What is monopoly?
Monopoly is that form of market structure in which there is a single producer and seller of a product which has no close substitutes. The difference between firm and industry exists no longer.
What- is the main objective of monopolist?
The main objective of monopolist is to maximize profit. He wants to increase his total profit; not per unit profit.
What is product differentiation?
Product differentiation implies creating differences in the shape, colour, form or packing of a product. Such differentiation makes products substitutes of one another, but not complete substitutes.
Differentiated products are the feature of which market?
Write any one characteristic of oligopoly market.
Due to fewer number of sellers in a oligopolic market, mutual dependence is found among them.
RBSE Class 12 Economics Chapter 12 Short Answer Type Questions
Define monopolistic market.
Monopolistic market implis such a market in which a specific product has only one producer or seller. The product should not have a close substitute. According to Prof. Leftwich, “Pure monopoly is that market state, in which one firm sells the production of that product whose substitute is not available.”
“Real competition exists in oligopoly market.” Explain this statement.
Oligopoly refers to a market form, in which there are small number of companies that produce the same product or a slightly different product. In such a case, the policies of a firm depend on how they think the rival competitors will react to their move. Producers being less, they are able to monitor the moves of competitor firms, and they are even prepared to find solutions to each other’s strategies. Due to this, a fierce competition is seen among firms in oligopolic market. This is why it is said that real competition is seen in oligopolic market.
Write down any two characteristics of oligopoly market.
Following are the two characteristics of oligopoly competition
(a) Interdependence : Under oligopoly, a firm cannot take independent price and output decisions. Since the number of competitive firms is limited, therefore each firm must keep in mind the reactions of the rival companies. The price and output decision of an oligopoly firm has a great impact on the price and output decision of the rival companies.
(b) Role of Selling Costs : Advertising plays a big role in an oligopolic market, compared to other market systems. A large expenditure is required on advertising and sales promotion techniques to maintain and increase current market share.
Write down any two characteristics of monopolistic competition.
Following are the two main characteristics of monopolistic market:
- In monopolistic competition, number of firms is large. However, no single one controls a major portion of the total output. Firms need not bother about reactions of rival firms, and competition exists between all the sellers.
- In this market, the products made by different firms have slight differences. This differences exists on basis of form, colour, shape, design or packing.
Write down the meaning of imperfect competition.
Imperfect competition is an extensive term. It includes the entire areas between perfect competition and pure monopoly. In real life, this is how markets are. It includes states of oligopoly, duopoly and monopolistic competition. Prof. Fairchild has defined it thus – “If the market is not organised properly, if difficulty exists in mutual relations between buyers and sellers, and they are unable to compare their product with products and prices of things bought by other people, then such a state is called the state of imperfect competition.”
RBSE Class 12 Economics Chapter 12 Essay Type Questions
“Monopolistic market is an extreme situation”. Discuss this statement.
Monopolistic market is one, in which, there is only one producer or seller of a specific product. This product should not have a close substitute. There are effective restrictions on entry of new firms in the industry. These obstacles can be artificial, institutional, economic or financial. In India, Indian Railways, State Electricity corporations, etc. can be its examples. Pure monopolistic market cannot be seen in practice. Imperfect competition market can only be seen in actual. This is of course an imaginary concept. In present time, whether it be Indian Railways or State Electricity coroporations, all have to face competition, i.e. Railway has to ccompete with roadways, similarly, electricity department faces competition from alternative energy sources (solar energy is a strong competiter).
It is clear from the above analysis that both pure monopoly and perfect competition are theoretical hypotheses, not seen in real life. Both have their limits. In fact, a-state between these two exists in markets, which is also called imperfect competition market.
Discuss in detail the main characteristics of monopolistic competition.
Following are the main features of Monopolistic Competition:
(a) Existence of a Large Number of Firms : An important feature of monopolistic competition is that there is a large number of firms in the market, each firm accounting for very little share in the overall production of the industry. Companies are small- sized and they are found in large numbers. This type of situation is found in those branches of production in which scale economy is limited with a little bit of capital investment and simple techniques of production.
(b) Product Differentiation A distinct feature of monopolistic competition is product differentiation. Though the number of firms is large, but their products differ from one another in colour, shape, brand , quality, durability, etc. These products are close substitutes. Examples- Soaps like Pears, Dove, Patanjali, etc., Pens like Reynolds, Parker, etc.
(c) Freedom of Entry and Exit of Firms This is another important feature of monopolistic competition. It is easy for new firms to enter and existing firms to leave in monopolistic competition. Free entrance means that when the existing firms in the industry are earning economic benefits, then new entities enter the industry which help in the expansion of production.
As a result, the price of the product decreases in the long term. However, it should be noted that under monopoly competition, entry cannot be as easy or independent as compared to products with perfect competition. But under monopolistic competition, the new firm can only produce new brands or product varieties, due to which it may be difficult to compete in the beginning with already well-established brands and product varieties.
(d) Some Influence over the Price Each firm under monopolistic competition produces a product variety which is a close substitute of others. Therefore, if a firm lowers the price of its product variety, some customers of other product varieties will switch over to him. This means that as the the price of its product lowers, its quantity demanded will increase. On the other hand, if he raises the price of its product, some of his customers will leave him and buy similar products from his competing firms.
This implies that demand curve facing a firm working under monopolistic competition slopes downward and marginal revenue curve lies below it. This means that under monopolistic competition, an individual firm is not a price taker but will have some influence over the price of its product. If the producer fixes a higher price, he will be able to sell a relatively smaller quantity of output. And if the producer fixes a lower price, he will be able to sell more. Thus, under monopolistic competition, a firm has to choose a price-output combination which will maximize its profit.
(e) Non-price.Competition : An important feature of monopolistic competition is non-price competition, through which companies try to win customers in the market. Competitive rivals use various strategies, like the guarantee of repair, after sales service, gift plans, etc.
(f) Less Mobility : Under monopolistic competition, both the goods and services are not fully mobile as it is in perfect competition.
(g) More Elastic Demand : Under monopolistic competition, demand curve is more elastic than in a pure monopoly. In order to sell more, the firm must reduce its price.
(h) Selling Costs Selling costs constitute a substantial part of the total cost under imperfect or monopolistic competition. Selling costs refer to those costs which are incurred by the firms for promoting their sales. These are incurred on advertisements, salesmanship, etc.
(i) Imperfect Knowledge Buyers and sellers lack the right knowledge about the price of the product. Because it is not possible to compare the products of different companies due to product discrimination, buyers prefer a particular brand from among a wide range of products differentiated by special firms.
Write down the meaning and characteristics of oligopoly.
Oligopoly is an important form of imperfect competition. Oligopoly is said to prevail when there are a few firms or sellers in the market producing or selling a product. When there are two or more than two, but not many producers or sellers of a product, oligopoly is said to exist. Oligopoly is also often referred to as “Competition among the Few”. There is no borderline between ‘few’ and ‘many’, but when the number of sellers of a product are two to ten, oligopoly situation is said to exist. When products of a few sellers are homogeneous, it is the situation of Pure Oligopoly.
Prof. George J. Stigler defines oligopoly as, ” That situation in which a firm bases its market policy in part on the expected behaviour of a few close rivals.”
William Fellnser refers to it as, ” Competition among the few”.
(a) Monopoly Power The first characteristic of an oligopoly firm is its monopoly power. The Oligopoly firm does not have absolute monopoly because it is not the only firm to constitute the industry. But in the case of its market conditions and some of its business practices, the oligopoly firm has a monopolistic character.
(b) Interdependence Under oligopoly, a firm cannot take independent price and output decisions. Since the number of competitive firms is limited, therefore each firm must keep in mind the reactions of the rival companies. The price and output decisions of an oligopoly firm has a great impact on the price and output decisions of the rival companies.
(c) Indeterminate Demand Curve The interdependence of firms makes their demand curve indeterminate. When a firm lowers the value, other firms also cut their prices. That’s why the firm cannot be certain about the demand of its product. Thus, the demand curve facing an oligopolistic firm loses its certainty and is thus uncertain because it constantly changes due to the reaction of the rival companies.
(d) Role of Selling Costs Advertising plays a big role in the monopolistic competition market compared to other market systems. A large expenditure is required on advertising and sales promotion techniques to maintain and increase current market share.
(e) Conflicting attitude of firms At times, the firms realize the disadvantage of mutual competition and desire to combine together to maximize their joint profits. The tendency, at such times, is towards collusion to serve their common interests. After some time, dissatisfaction of one firm or the other, may lead to competition, including cut-throat competition. Thus, two conflicting attitudes are at work under oligopoly-one of cooperation and united action and the other of conflict and antagony.
(f) Lack of Uniformity Another feature of oligopoly market is the lack of uniformity in the size of firms. Firms do not confirm to standard size. Some may be small, others very large.
(g) Price RigidityAnother important feature of oligopoly with product differentiation is the existence of price rigidity under it. Prices tend to be rigid under oligopoly. If a firm introduces a price cut, the Customers of rival firms are attracted towards it. The rival firms will retaliate by cutting down their prices. Thus, a price war will ensue which will benefit none.
What is product differentiation? How is it possible?
Products are not exactly the same in competition, nor are they the only option in the form of monopoly. Under the monopolistic competition, the products of different sellers are very similar and work as alternatives to each other. Every seller has a monopoly on the variety of its products, but it has to face tough competition from its rival sellers who are selling options close to their product. We thus find that there are different monopolists of different productive varieties competing with each other in monopolistic competition.
For example, in India, there are various manufacturers of bathing soap who produce different brands such as Lux, Dove, Godrej, etc. Thus, the manufacturer of ‘Lux’ has a monopoly of producing it, nobody else can produce and sell the bathing soap with the name Lux. But he faces competition from the manufacturers of Hamam, Palmolive, etc. which are close substitutes of Lux. The manufacturers of Lux cannot therefore decide about its price- output policies by totally ignoring the other varieties of soap which are its close substitutes. Other examples of monopolistic competition are the producers of toothpastes, the manufacturers of toothbrushes (Colgate, Binaca, etc.), retailers’ shops in the town, barbers’ shops in the town, etc.
There are, broadly speaking, two bases of product differentiation. First, differentiation may be based upon certain characteristics of the product itself such as exclusive patented features, trade marks and trade names, special types of packages or wrappers if any, or difference in quality, design, colour or style. Real qualitative differences like those of material and design and workmanship are no doubt important means of differentiating products. But imaginary differences created through advertising, the use of attractive packets, the use of trade marks and brand names are more usual methods by which products are differentiated, even though they are identical or nearly the same.
Secondly, differentiation can be based on the conditions surrounding the sale of the product. This means that the product is differentiated if the product provided in the process of selling a product by a seller or firm is not the same provided by other sellers or firms. Thus, in the retail business, to take only one example, the convenience of the seller’s location in the circumstances surrounding the sale of the product, the normal tone or character of his way of doing business, proper behaviour, courtesy, efficiency, and others. If these factors surrounding the sale of a product are different in the case of different sellers, then in each case the product will be different, as buyers keep these things in mind during the purchase. Factors such as good faith, business market, etc. serve as the basis of buying preference.
Compare monopoly and monopolistic competition markets.
The following similarities and dissimilarities are found in monopolistic and monopolistic competition markets :
- In both markets, the equilibrium lies on the point where marginal cost and marginal revenue are equal (MC = MR).
- In both the markets, the demand curve or the average revenue (AR). curve slopes downward from left to right, and the marginal revenue (MR) curve is below it.
- In both markets, the equilibrium price of the product is more than its marginal cost.
- Producers have control on the price of product in both markets. He can make slight changes in the product’s price, as per his wish.
- In both markets, the equilibrium, point is below the average revenue curve.
- In both markets, firms produce less than the optimum quantity. Hence, they have additional capacity of prodution.
- In a monopoly there is only one producer firm, while in monopolistic competition, the number of firms is more.
- No product differentiation is done in monopolistic market, while it is a key feature in monopolistic competition.
- There is more of firm’s control on product pricing in a monopoly, since there is no competition, while in monopolistic competition, the firm does not have such absulute control over price, since it has to compete with a number of firms in the market.
- The demand curve of a monopolistic firm is of a steeper slope, while the demand curve in a monopolistic competition has a less steeper slope.
- In monopolistic market, the firm receives extraordinary profit in the long term, while in monopolistic competition, the firm receives only normal profit in the long term.
- A monopolist can adopt the policy of price discrimination, but this is not possible in a monopolistic competition.
- In a monopolistic market, the price of the product is found to be the same in the entire market, since a single product is produced by a single firm, but because of product differentiation in a monopolistic competition market, prices of products may be different.
- Sales costs are not generally found in monopolistic market, while in monopolistic competition, sales costs are significant due to mutual competition among firms.
RBSE Class 12 Economics Chapter 12 Other Important Questions – Answers
RBSE Class 12 Economics Chapter 12 Multiple-Choice Questions
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.
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.
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 no entry barriers.
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.
The long-run equilibrium outcomes in monopolistic competition and perfect competition are similar, because in both market structures :
(a) The efficient output level will be produced in the long run.
(b) Firms will be producing at minimum average cost.
(c) Firms will only earn a normal profit.
(d) Firms realize all economies of scale.
A monopolist is able to maximize his profits when :
(a) His output is maximum.
(b) He charges a high price.
(c) His average cost is minimum.
(d) His marginal cost is equal to marginal revenue.
In which form of the market structure is the degree of control over the price of its product by a firm very large?
(b) Imperfect Competition
(d) Perfect Competition
Under which of the following forms of market structure does a firm has no control over the price of its product?
(b) Monopolistic competition
(d) Perfect competition
Discriminating monopoly implies that the monopolist charges different prices for his commodity:
(a) From different groups of consumers
(b) For different uses
(c) At different places
(d) All of the above
One characteristic not typical of oligopolistic industry is :
(a) Horizontal demand curve.
(b) Too much importance to non-price competition.
(c) Price leadership.
(d) A small number of firms in the industry.
The structure of the toothpaste industry in India is best described as :
(a) Perfectly Competitive
(c) Monopolistically competitive
The structure of the cold drink industry ih India is best described as :
(a) Perfectly competitive
(c) Monopolistically cpmpetitive market earn normal profits
Which of the following statements is incorrect?
(a) Even monopolistic can earn losses.
(b) Firms in a perfectly competitive do not face any barrier in their entry or exit.
(c) It is always beneficial for a firm in a perfectly competitive market to discriminate price.
(d) Kinked demand curve is related to an oligopolistic market.
The market for hand tools (such as hammers and screwdrivers) is dominated by Draper, Stanley and Craftsman. This market is best described as :
(a) Monopolistically competitive
(b) A monopoly
(c) An oligopoly
(d) Perfectly competitive
A market structure in which many firms sell products that are similar but , not identical is known as :
(a) Monopolistic competition
(c) Perfect competition
When an oligopolist individually chooses its level of production to maximize its profits, it charges a price that is :
(a) More than the price charged by either monopoly or a competitive market.
(b) Less than the price charged by either monopoly or a competitive market.
(c) More than the price charged by a monopoly and less than the price charged by a competitive market.
(d) Less than the price charged by a monopoly and more than the price charged by a competitive market.
Which of the following is not a characteristic of a monopolistically competitive market?
(a) Free entry and exit
(b) Abnormal profits in the long-run
(c) Many sellers
(d) Differentiated products
RBSE Class 12 Economics Chapter 12 Very Short Answer Type Questions
Monopoly is an extreme form of market structure. There is a single producer and seller of a product which has no close substitutes in the market.
What are the two features of monopoly?
Following are the two features of monopoly:
- Single Seller Under monopoly, there should be a single producer of the commodity.
- No Substitute of the Commodity All the units of a commodity are identical and there are no close substitutes of that commodity.
Under what conditions can a monopoly firm attain equilibrium?
- The monopolist is the sole seller of the product in a monopolistic market.
- In a monopoly, both the firm and the industry are the same.
What is discriminating monopoly?
It is a state where a company with monopoly power charges different prices in different markets according to the characteristics of each market. It assumes that monopoly can clearly identify the source of demand in each market and can see pricing properly; If this can happen, then it may be able to maximize its profitability.
What are the conditions of equilibrium for a discriminating monopoly?
Conditions for price discrimination are :
- Market Imperfections
- Agreement among Rival Sellers
- Geographical or Tariff Barriers
- Differentiated Products
- Ignorance of Buyers
- Artificial Differences between Goods
- Differences in Demand.
When is price discrimination profitable?
Price discrimination is profitable only if price elasticity of demand in one market is different from price elasticity of demand in the other.
What is dumping?
Dumping occurs when a producer sells a commodity in a foreign country at a price that is lower (net transportation cost, tariffs) than the price which he charges in the domestic market.
What are the methods of control of monopoly?
Following are the two methods of control of monopoly:-
I. Indirect Method
(a) Anti-monopoly legislation
(b) Maintenance of Fair Competition
II. Direct Method
(a) Purchaser’s Association
(c) Direct price regulation
(d) Public ownership.
What do you understand by discriminating monopoly?
Monopolist usually charges different prices for the same product at the same time from different customers. When the firm adopts this practice, it is called discriminating monopoly or price discrimination.
Define monopoly according to Prof. Thomas.
According to Prof. Thomas, “Broadly, the term is used to cover any effective price control whether supply or demand of services or of goods. It is used to mean a combination of manufacturers or merchants to control the supply price of commodities or services.”
Define monopoly according to Lerner.
According to Lerner, “A monopolist is a seller who is confronted with a falling demand curve for his product.”
Define monopoly according to K.E. Boulding.
According to K.E. Boulding, ” A pure monopolist is a firm producing product which has no effective substitutes among the products of other firms, effective in the sense that even though the monopolist may be making abnormal profits, other firms cannot encroach on these profits by producing substitute commodities which might attract purchasers away from the product of the monopolist.”
Define monopoly according to John D.Sumur.
Pure monopoly implies zero elasticity of demand in contrast to the infinite elasticity of demand which is a characteristic of pure competition.
What is imperfect competition?
Imperfect competition is the situation of a competitive market where there are many vendors, but they are selling odd (unequal) goods in opposition to the completely competitive market scenario.
What is monopolistic competition?
Monopolistic Competition refers to competition among a large number of firms selling similar but differentiated products, which implies that these products are close but not perfect substitutes.
State a feature of monopolistic competition.
Buyers and sellers lack perfect knowledge about the price of the product because it is not possible to compare the products of different firms due to product differentiation.
What is the concept of selling cost?
Selling costs constitute a substantial part of the total cost under imperfect or monopolistic competition. It refers to those costs which are incurred by the firms for promoting their sales. These are incurred on advertisements, salesmanship, etc.
What do you understand by Oligopoly?
Oligopoly is the market form in which there are two or more than two, but not many producers or sellers of a product present.
What is Kinked Demand curve?
Kinked demand curve is a tool for the determination of the equilibrium in oligopolistic market. It was first used by Paul Sweezy in 1934.
What is collusive oligopoly?
Collusive oligopoly is a situation in which a particular industry firms decides to join together for the purpose of maximizing its joint profit as a single entity and negotiating for market share.
What is price collusion?
This is an illegal process, which is considered a criminal offense, in which many companies increase the price of goods to make big profit. This is done so that the external competitors do not enter the market.
Define oligopoly according to Prof. George J. Stigler.
According to Prof. George J. Stigler, ” That situation in which a firm bases its market policy in part on the expected behaviour of a few close rivals.”
Define Monopolistic competition according to Leftwitch.
According to Leftwich, ” Monopolistic competition is a market situation in which there are many sellers of a particular product, but the product of each seller is in some way differentiated in the minds of consumers from the product of every other seller.”
RBSE Class 12 Economics Chapter 12 Short Answer Type Questions
What are the four features of monopoly?
Following are the 4 features of monopoly:
(a) Single Seller – Under monopoly, there should be a single producer of the commodity.
(b) Firm is also an Industry – There being only one firm, the distinction between firm and industry no longer exists. Monopoly firm is also an industry.
(c) Substitute of the Commodity – All the units of a commodity are identical and there are no close substitutes of that commodity.
(d) No Entry of new firms – There is restriction on other firms to enter the market.
Explain the nature of demand and revenue curve under monopoly.
The demand curve for the monopoly firm is similar to the industry (market) demand curve. A market demand curve slopes downwards to indicate that more quantity of a commodity is demanded at a lower price and vice versa. The market demand curve facing the monopolist constitutes his average revenue curve. Thus, the average revenue curve of a monopolist slopes downwards, indicating that higher quantity of a commodity can be sold only at a lower price.
In the case of monopoly, one firm constitutes the whole industry. Therefore, the entire demand of the consumers for a product faces the monopolist. Since the demand curve of the consumers for a product slopes downward, the monopolist faces a downward sloping demand curve. If he wants to increase the sale of his good, he must lower the price. To put into another way, a monopolist can lower the price by increasing his level of sales and output, and he can raise the price by reducing his level of sales or output.
The monopolist is able to gain super-normal profit in the long run. How?
Even in the long run, there is always a tendency to protect the extra profit for the monopoly firm. Entry into the industry is prohibited, due to the fact that no firm can enter the market, unlike the perfect competition. Thus, when a monopolist earns long lasting super-normal benefits, then no other producer can enter the market in hopes of sharing super general profit potential. Therefore, long-lasting super normal benefits also do not end.
Lack of entry into the industry as well as lack of substitutes in the market means that the monopolist does not have an optimum size plant in the long-run or has to use it at optimum capacity. The monopolist will adjust his plant to the demand conditions in the market.
Explain measurement of monopoly power.
All monopolists do not belong to the same class. Some of them are more powerful while some are less powerful. Therefore, the ability to influence price is not uniform in all cases.
(a) The more the variation between marginal cost and price, the monopolist power will also be correspondingly higher.
(b) Powerful monopolists are able to obtain larger monopoly profits.
(c) Where the elasticity of demand is less, the extent of monopoly power will be more.
(d) Monopoly power will be less, where cross-elasticity of demand is high.
When is price discrimination profitable? Why?
Price discrimination is profitable when at the single monopoly price, price elasticity of demand in one market is different from price elasticity of demand in the other. Only when price elasticities in the two markets at a single monopoly price are different, marginal revenue in one market will be greater than in the other and as a result it will pay the seller to shift some units from one market to the other and charge different prices in the two markets to increase profit.
When is price discrimination possible?
Price discrimination is possible in the following ways:
- Price discrimination by a seller is possible when it is not possible to transfer any unit of the product from one market to another.
- Secondly, price discrimination can occur if it is not possible for the buyers in the dearer market to transfer themselves to cheaper market to buy the product or service at a lower price.
In view of the above two essential conditions, price discrimination is possible in the following cases:
(a) The nature of commodity or service is such that it cannot be transferred from one market to another.
(b) There exist long distances or tariff barriers between the two markets in which price discrimination is practiced.
(c) There is a legal sanction for price discrimination.
(d) There are preferences or prejudices on part of some buyers to buy products at higher prices.
(e) Ignorance and laziness on the part of buyers.
Write down a brief note on maintenance of Fair Competition in anti¬monopoly legislation.
The monopolist resorts to restriction of supply and charging of high prices because he a has the assurance that there are no competitors for him. Therefore, if the monopolist is faced with the likelihood of possible competition, he will not exercise his monopoly powers freely.
The monopolist employs various devices to injure and destroy rival firms. Therefore, the government should prohibit these unfair means of competitive commerce. However, implementing this policy’ is riot so easy.
- The government can fix a price alone to regulate the rate reduction policy, but monopoly offers other types of concessions and exemptions to eliminate each other’s rivals.
- New competitors have limited capital to successfully start production.
- The monopolist leverages the mass production with reduced costs and increased efficiency. This is possible due to the well-established long-standing nature of monopoly firm.
- The monopolist has a good financial position, so that he can spend a large amount on competitive advertising, which helps him to capture the market and to force competitors out.
- The monopolist can set up his companies in his own name to sell the products of his rivals.
- Existing firms have reputation and enjoy the goodwill of consumers, which makes it difficult for a new firm to successfully compete with it.
Differentiate between monopoly and perfect competition.
The following differences are found between the two:
(a) A monopolist fixes a price at a higher level than marginal cost, whereas a perfectly competitive firm sets price equal to MC.
(b) A monopolist can make super-normal profits even in the long run, as entry of new firms to the industry is not possible under monopoly. On the other hand, a perfectly competitive firm makes only normal profits in the long run.
(c) Price is higher and output smaller under monopoly firms as compared to those under perfect competiton.
(d) Monopoly equilibrium is possible whether MC is rising, remaining constant or falling, whereas for a firm working under perfect competition, MC must be rising at the equilibrium output.
(e) Monopoly equilibrium is usually achieved below the optimum size, that is, below the output level where LAC’ is minimum.
(f) A monopolist can discriminate prices, whereas price discrimination is not possible in a perfectly competitive market.
Explain short run equilibrium under monopolistic competition.
In the short-run, a monopolistic competitive firm’s equilibrium is established at the level of output where its MC= MR, and MC is rising at this level of output.
Short period equilibrium does not mean the same price for all firms. Uniformity in prices cannot be expected because the products of various firms are not identical. Cost of production of firms also varies. Normally average cost (AC) of large firms is less whereas it is high for small-sized firms. Therefore, supernormal profits are likely for some firms. Normal profits for some others and loss to remaining firms would accrue. Thus, a monopolistic competitive firm, in the short run, may:
(a) Earn super normal profits, i.e., AR > AC
(b) Earn normal profis, i.e., AR = AC
(c) Incur losses, i.e., AR < AC.
Explain the concept of product variation.
Another form of non-price competition, which a firm has to face under monopolistic competition is that the products of different firms vary. A firm, under perfect competition, does not face this problem because the product is very similar under the perfect competition. There is a trend of product variation under monopolistic competition because different firms Lave different products.
The variation in the product may refer to a change in the quality of the product itself, technical changes, a new design, better materials, it may mean new package or container, it may mean more prompt or courteous service, a different way of doing business. The quantity of product that a firm will be able to sell in the market depends on the manner in which its product is different from others. Where the possibility of discrimination exists, the sale depends on the skill with which a product is presented differently from others, and appeals to a particular group of buyers.
Explain the concept of selling cost.
According to Chamberlin, ” Selling cost are those costs which are incurred in order to alter the position or shape of the demand curve for a product.”
Generally, following expenses are included in selling cost :
- Advertisement through newspapers, journals, radio, television, cinema, posters, etc.
- Expenditure on showrooms, show-windows, exhibition, etc.
- Salaries of salesmen.
- Expenses on sales department.
- Expenditure on samples.
- Expenditure on commissions and other facilities.
Selling costs have a very significant place in a monopolistic competition market. Firms generally use two types of advertisements to attract customers :
- Informative advertisement
- Manipulative or Competitive advertisement.
Discuss the wastage in monopolistic competition.
The most common wastage under this market condition is of two types –
(1) Economic Wastage
(a) Under monopolistic competition, the level of production of each firm is below optimum, which clearly shows that there is wastage of resources.
(b) A number of inefficient firms can survive under monopolistic competition even in the long-run by building up consumer loyalty.
(c) Too many varieties of the same product will be produced with the scarce resources which could have been otherwise put to better uses.
(d) Selling costs are unnecessarily incurred.
(2) Social Costs or Social Wastage
(a) Its economic costs are a burden on the weaker sections of the society.
(b) It forces the consumers to buy in far off markets which involves a tremendous labour when the price is too high.
Thus, it is necessary to regulate monopolistic competition in the right direction to make it socially and economically useful. ;
Write any three characteristics of imperfect competition.
Features of imperfect competition are –
- The number of sellers is more in imperfect competition and there is competition among them.
- There is no close substitute of the product produced in an imperfect market.
- Sales costs are considered in this market, since each firm uses advertising to sell its product.
Write any four features of oligopoly.
Four features of oligopoly are –
- Number of sellers is less.
- There is mutual dependence among sellers.
- Demand curves are indeterminate due to mutual dependence of firms.
- In oligopoly, lot of expenditure is done by firms on advertising.
Differentiate between oligopoly and duopoly.
The following differences are found between oligopoly and duopoly –
- Number of sellers is more than two in oligopoly while they are only two in duopoly.
- In oligopoly, price is determined on basis of marginal revenue and marginal cost, while in duopoly, price is determined by mutual agreement and nature of market.
- Product differentiation exists in oligopoly, while in duopoly, both firms make the the same product.
- There is lack of collusion among firms in oligopoly, whereas it exists in duopoly.
What is meant by patent right ? Clarify.
When a firm, which developes or invents a product, gets a recognition from the government that no other firm or producer will produce it, it is called patent right. Upon receiving the patent right, the firm becomes the sole producer of that product.
Differentiate between monopoly and monopolisitc competition.
Difference between monopoly and monopolistic competition :
|1.||Only one producer/seller.||Number of sellers is more.|
|2.||Products are similar and homogeneous.||Product differentiation is seen.|
|3.||Entry of new firms is impossible.||Entry of new firms is possible.|
|4.||No competition in monopoly.||Competition is seen here.|
|5.||There is no sales cost involved.||Sales cost is involved.|
RBSE Class 12 Economics Chapter 12 Long Answer Type Questions
What is monopoly? Explain how price is determined under monopoly?
Monopoly is an extreme form of market structure. In monopoly, there is a single producer and seller of a product which has no close substitutes. The word monopoly has originated from the Greek words Mono meaning ” single” and Poly meaning “seller”. Thus, monopoly means a single seller. The monopolist does not have any rivals or competitors. This implies that the degree of competition in monopolist market structure is nil or extremely small.
It is now generally understood that in monopoly, the existence of a single producer or seller means the one who is producing or selling a product which has no close substitute. The absence of any form of competition and the existence of pure or complete control of a market by a firm is the fundamental property of monopoly. The maintenance of this situation depends on the firm’s success in discouraging potential competitors.
Definitions of Monopoly :
According to Prof. Thomas, “Broadly the term is used to cover any effective price control whether supply or demand of services or of goods. It is used to mean a combination of manufacturers or merchants to control the supply, price of commodities or services.”
According to K.E.Boulding, “A pure monopolist is a firm producing product which has no effective substitutes among the products of other firms. Effective in the sense that even though the monopolist may be making abnormal profits, other firms cannot encroach on these profits by producing substitute commodities which might attract purchasers away from the product of the monopolist.
According to John D. Sumur, “Pure monopoly implies zero elasticity of demand in contrast to the infinite elasticity of demand which is a characteristic of pure competition.”
Every monopolist aims at maximizing his profit. He could achieve his objective at that point where MC = MR. We have to examine how a monopolist decides price discrimination in different markets. We can apply the theory of simple monopoly firm to more than one market. We shall assume that the discriminating monopolist also seeks to maximize his profit like any simple monopolist. To ensure this, he adjusts the output in such a manner as to equate marginal revenue with marginal cost.
Price determination under monopoly
A monopoly firm is the sole seller of an object. The purpose of a monopoly is to get the maximum benefit. Of course, those who enter business, they aim to achieve the maximum benefit. But there is no chance of obtaining unusual benefits under competition as many vendors are there, but a monopolist is the sole seller of an object. So he will take advantage of the situation and try to get maximum profit, because, those buyers who want these goods, have no other choice than to buy it from him. So in determining the price of a product, the monopolist will be guided by only one purpose, that is, to maximize his profits.
We know in a market, the price is determined by supply and demand of the product. Even under monopoly, a good price is determined by supply and demand, but in a different way. Under the perfect competition, there will be a number of sellers, but under monopoly, monopolist is the sole seller of an object. That’s why he can control the supply of his goods. But he cannot control the demand because there are many buyers.
The purpose of a monopoly is to maximize profit. For this, he can do one of the following two things. He can decide the price for his good and leave the market to decide what quantity of production will be required. Or he can fix the output and leave the price to be fixed by supply and demand forces. In other words, he can fix either the price or output; but not both.
What is monopolistic competition? Explain and illustrate with the- help of a diagram how in the long run a firm under monopolistic competition makes only normal profits.
The concept of monopolistic competition put forth by E.H. Chamberlin was more realistic than either perfect competition or pure monopoly. Before Chamberlin, monopoly and competition were regarded as two alternative market structures, one would be absent when the other exists. On the other’hand, according to Chamberlin, in most of the real world economic situations, both monopoly and competitive elemehts are present.
Chamberlin’s concept of monopolistic competition is thus, a blending of competition and monopoly. The difference between short-run and long-run in a monopolistic competitive market is that in the long-term, new companies can enter the market, since as companies are making positive economic benefits, while in the short-run, new companies will be attracted to these benefits and they will opt to enter the market. Unlike a monopoly market, no barrier to entry is present in a monopolistic competitive market. Therefore, it is easy for new companies to enter the market in the long run.
The monopolistically competitive firm’s long-run equilibrium situation is illustrated in the figure below :
Long run profit maximization by a monopolistically competitive firm.
The entry of new companies increases the supply of differentiated products, from which the market demand curve of the firm is shifted to the left. As the market increases, the firm’s demand curve will continue to move towards the left, as long as it is not tangent compared to the average total cost curve at the maximum level of profit compared to the figure shown in the figure. At this time, the firm’s financial profits are zero, and there is no incentive to enter the market for new firms now. Thus, in the long run, the competition coming from the entry of new companies can become a cause of general profit for each company in a monopolistic competitive market, exactly like a perfectly competitive firm.
RBSE Class 12 Economics Chapter 12 Numerical Questions
From the following table, determine numerically the best level of output for the monopolist hy (a) Total approach and (b) Marginal approach.
(a) Total Approach
The monopolist would be in equilibrium when he produces and sells 5 units of the commodity at the price of ₹ 12 per unit.
(b) Marginal Approach
The best level of output for the monopolist would be 4 units. At this output, both MR and MC are equal to price (? 8) and he is getting maximum profit of ₹ 6.
From the following table, find out the best level of output for the monopolist by Marginal approach.
It is evident that when MR = MC, the monopolist gets maximum profit. Here the monopolist maximizes his total profits at ₹ 15 when he produces and sells 2.5 units of output at the price of ₹ 22.00.