KASC B.

COM 2021-2022 MICRO ECONOMICS

UNIT-V

MARKET STRUCTURE AND ANALYSIS

Market Structure Organizational Chart:

Market

TIME AREA
COMPETITION

Very Short Local

Short Period National Perfect Imperfect

Competition Competition

Long Period International

Very Long Period Regional Market

Monopoly Monopolistic Oligopoly Duopoly

A market is the area where buyers and sellers contact each other and exchange goods and
services. Market structure is said to be the characteristics of the market. Market structures are
basically the number of firms in the market that produce identical goods and services. Market
structure influences the behavior of firms to a great extent. The market structure affects the
supply of different commodities in the market.

When the competition is high there is a high supply of commodity as different companies try to
dominate the markets and it also creates barriers to entry for the companies that intend to join
that market. A monopoly market has the biggest level of barriers to entry while the perfectly
competitive market has zero percent level of barriers to entry. Firms are more efficient in a
competitive market than in a monopoly structure.

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Market Structure Functional Chart:

Number Number State of

Nature of the Price policy of Conditions of
Types of Market of of Market for Price
Product the firm Entry
Sellers Buyers each firm

Perfect (or) Uniform

Large Large Homogenous Very Small Price Taker Free
Pure and Low
Strong
Monopoly One Large Unique Large Price Maker barriers to Very High
entry

Some control
Differentiate over price
Monopolistic Many Large d (But, Close Small depending on Free Moderate
substitute) consumer’s
brand loyalty

Entry barriers
due to
Homogenous Considerable
dominance by
Oligopoly Few Large (or) Large control over
few firm (or)
differentiated prices
due to product
differentiation

Entry barriers
due to
Considerable dominance by
Duopoly Two Large Large Large control over few firm High
prices (or)due to
product
differentiation

Price determination is one of the most crucial aspects in economics. Business managers are
expected to make perfect decisions based on their knowledge and judgment. Since every
economic activity in the market is measured as per price, it is important to know the concepts
and theories related to pricing. Pricing discusses the rationale and assumptions behind pricing
decisions. It analyzes unique market needs and discusses how business managers reach upon
final pricing decisions.

It explains the equilibrium of a firm and is the interaction of the demand faced by the firm and its
supply curve. The equilibrium condition differs under perfect competition, monopoly,
monopolistic competition, and oligopoly. Time element is of great relevance in the theory of

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pricing since one of the two determinants of price, namely supply depends on the time allowed to
it for adjustment.

FIRM AND INDUSTRY

A Firm is a production unit; producing for sale; selling at a profit. With the objective of
maximizing the profit. It is a single unit of production and is a legal person. A group of firms
producing similar or identical goods are known as Industry.

Firm Industry
1.Firm refers to a single individual unit of 1. Industry refers to a group of firms doing the
business inside an industry same business.
2.It operates within an industry 2.Operates within an economy
3. There will be existence of one firm. 3.There can be many firms in an industry
4. No separate rules and regulations for a firm. 4.Rules and regulations are made specifically
for a particular industry

Perfect Competition:-
Meaning:-
A Perfectly competitive market is one in which the number of buyers and sellers is very large, all
engaged in buying and selling a homogeneous product without any artificial restrictions and
possessing perfect knowledge of the market at a time.

Definition
According to Mrs. Joan Robinson, “Perfect competition prevails, when the demand for the output
of each producer is perfectly elastic”.

Features (or) Characteristics (or) Conditions of Perfect Competition:-

 It is the existence of a large number of buyers and sellers in the market.

 The market is that all sellers are selling homogeneous (or) identical products.

 In this market competition is that the firms are free to enter (or) leave the industry.

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 It is the existence of perfect knowledge on the part of the buyers and sellers regarding the
market conditions.

 It is depends upon the perfect mobility of factors of production.

 There is no Transport cost.

 There is only one price for the commodity.

1. Large Numbers of Buyers and Sellers:

There are innumerable number of buyers and sellers. All the sellers sell the commodity at the
prevailing market price. No single seller or single buyer can influence the price in the market,
because, the market share of each is very small. E.g., the market shares of an agriculturist
producing paddy.

2. Homogeneous Product
The product sold by all the sellers in the market is identical or homogeneous or perfect
substitutes. A buyer cannot differentiate between the products of one seller from the other. In
such a situation, all sellers can charge, individually, only one price, or the same price for the
particular product.
Eg., Ullazar sandi.taken individually.

3. Absence of Artificial Restrictions

The third condition necessary for the prevalence of pure competition is that in the market, there
exist no artificial barriers that restrict the free play of market forces, such as demand, supply,
factors, prices and costs.

4. Free Entry and Exit of Firms

New firms would enter the market when profits are high or abnormal. Existing firms quit the
market, when there is loss. No restrictions should be there for firms to enter and leave the
business, as occasion’s demands. Similarly, when commodity prices are low, the existing buyers
would increase their purchase and /or new purchasers would enter the Market.

5. Perfect Knowledge on the part of Buyers and Sellers

Here, it is assumed that sellers and buyers known perfectly well the marked conditions: These
are
(a) Prevailing price
(b) Total market supply and total market demand, etc.
All consumers have perfect knowledge about market conditions and prices prevailing in the
Market. As the consumers are aware of the prevailing price, there is no possibility for them to
pay higher prices, when lower prices prevail in the market.

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6. Perfect Mobility of Factors of Production

Factors of production are free to move from one firm to another, throughout the economy. It is
also assumed that workers can move from low-paid job to high paid jobs, which implies that
skills can be utilized most efficiently.Finally,it is assumed that raw materials and other factors
are not monopolized and labour is not unionized. In short, there is perfect competition in the
markets of factors of production.
7. Absences of transport cost
As single price prevails, no cost of transport has to be incurred. If the cost of transport exists,
then prices will differ, from place to place for the same goods or product sold.

Distinction between Pure and Perfect

Pure Competition:-
It is one which satisfies only the first three features of perfect competition, namely, existence of
large number of buyers and sellers, existence of a homogeneous product and free entry and exists
for firms.

Perfect Competition:-
1) Existence of perfect knowledge on the part of the buyers and sellers regarding the market
conditions.
2) Perfect mobility of factors of production.
3) There are no transport costs.
4) There is only one price for the product.

Difference between Firm and Industry

A Technical unit, in which commodities are produced, is called a “Firm”. But an Industry is
constituted by many (or) group of firms.
Which many firms are engaged, each adopting its own production and price policies.

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Equilibrium of the Firms:-

Let us analyze the conditions under which the firm and the Industry will be in equilibrium in the
short run. Equilibrium of the firm depends not only on the basic conditions but also on the period
of time and cost conditions.
In the short-run, there is no possibility for firms to enter (or) leave the Industry. But in the long
run new firms may enter and old firms may leave the Industry.

Short-run Equilibrium of the Firm:-

A Firm is said to be in equilibrium only when it sells an equilibrium output which maximizes its
profit by equating marginal revenue with marginal cost.
Diagram

X axis represents output and Y axis represents price/cost.

1) SRAC is the short run Average cost curve.

2) SRMC is the short run marginal cost curve.
3) Q is the equilibrium point at which SRM C = SRMR.
4) At the equilibrium point Q, the short run average revenue is MQ and the short-run
average cost is ME.
5) Therefore, profit per unit of output is MQ – ME. ie, EQ. Total output is OM.
6) Therefore, firms earns supernormal (Abnormal profit) profit PQES.
7) Thus, the firm is in equilibrium with supernormal profit.

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Short-run Equilibrium of the firm with loss:-

1) In output OM is determined by the intersection of SRMR and SRMC.

2) At the output OM, the short run average cost is MQ and SAR (Price) is ME. Therefore
loss per unit is MQ – ME, ie, EQ. Total output is OM. Therefore, firm incur loss PQES.
Then the firm is in equilibrium with loss.

Per unit is MQ – ME ie., EQ. Total output is OM. Therefore, the firm incurs loss, PQRS (the
shaded area). Thus, the firm is in equilibrium with loss.

Long-run Equilibrium of the firm:-

A firm is in equilibrium in the long-run, when it has no tendency to change its output. If firms
are earning abnormal profits, new firms will enter into the Industry.

Hence, competition will occur and also supply increase. This will result in fall in prices and in
turn, the firms earn only normal profit.

In case, if firms incur loss, few firms may leave the industry and hence supply is reduced.
Therefore, the firms earn normal profit instead of loss. Thus, the competition between the old
and new firms neutralizes the abnormal profit as well as loss of the firms. Hence the firm
neither expands nor contracts, its output. It just sells that output for which MC = MR and
there by maximize its profit in long run.

The first condition for equilibrium of a firm is that marginal cost must be equal to marginal
revenue and that the condition is the marginal cost curve should cut the marginal revenue from
below. The other condition is that average revenue or price should equal average cost. In short
run there are abnormal profits. These attract new firms.
In case of losses, some existing firms will quit business .this period of entry and exit by firms is
by itself long run. The process of entry or exit of firms continues till a profit becomes normal.

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The industry attains equilibrium when AR or price = AC. The price is equal to marginal revenue
and marginal cost.

The long-run equilibrium of the firm take place when, Price = LRMC = LRMR = LRAR =
LRAC

Difference between Monopoly and Perfect Competition

S.NO Features Monopoly Perfect Competition

1. Description Extreme market situation, where A fair,direct competition between
there is only one seller. He has no buyers and buyers: sellers and
competition and so controls supply sellers; and finally between buyers
and price and seller
2. Buyer and Sellers Only one seller and practically all Large number or Buyer and
buyers depend on him. Hence he sellers. Hence no seller or buyers
has absolute control over the can alter the price in the Market.
Market.
3. Supply Supply from only one seller, hence Supply comes from large no. of
absolute control over the supply. sellers. Individual supply is
negligible
4. Demand Demand is inelastic, Demand Demand is perfectly elastic.
slope downward. Demand curve is a horizontal
straight line.
5. Product Homogeneous product (identical) Homogeneous product
6. Nature of No Competition at all. No price or Pure and perfect competition in
Competition product competition. price.
7. Price Higher price higher than all Normal price P= MR= MC
competitive Price P> MR= MC
8. Output Small output fixed by the sole Large output fixed by MR =MC
seller
9. Profit Excess profit monopoly gain Normal profit realized by price
competition.
10. Application Pure Monopoly is rare but Quite unreal.
elements of monopoly are there in
Markets.
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Monopoly

Meaning:-
The word monopoly is made up of two words, “Mono” and “poly”. Mono means “single‟
and “poly” means “selling‟. Thus monopoly means single seller of a product in the Market.

Definition:-
According to dearly, “Monopoly means the absence of competition and control of one
side or the other of economic process by a single person”.

Features of Monopoly:-
1. Under Monopoly, single seller controls the whole supply of a single commodity. It is a “Price
Maker”.
2. There is large number of buyers in the market.
3. The commodity produced has no close substitutes.
4. There is no freedom to entrepreneurs to enter and complete with existing
entrepreneurs having full control over the market.
5. In order to get maximum profit, the monopolist may use his monopolistic power in any
number.

Kinds of Monopoly:-

Private Monopoly:-

1. It is owned and operated by the private Individuals or organizations for the purpose of profit
maximization.

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2. Public Monopoly (or) Government Monopoly:-

A Public Monopoly is owned and operated by governments. It is created for the welfare of the
society. For ex:- The various public utility services, such as water supply, electricity, railways
etc.,

3. Pure Monopoly: -

It means a single firm which controls the whole supply of a commodity which has no
substitutes, not even a remote one. Pure Monopoly exists only in the public sector. For ex:-
Telephone Industry in India is the “Pure Monopoly” of the Government.

4. Simple Monopoly:-

It is a market situation in which a single producer produces a commodity having only a remote
substitute. It changes a single price for the product from all the consumers.

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5. Discriminating Monopoly:-

It means the charging of different prices from different consumers for the same Commodity at
the same time. It is also called as “Price Discrimination”.

6. Natural Monopoly:-

If the supply of a commodity is localized in a single place, then the Monopoly is known as
“Natural Monopoly”. For ex:- India possesses the monopoly of manganese.

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Legal Monopoly:-

When a firm is given the legal right to produce a unique commodity it is known as “Legal
Monopoly” For ex:- In India the right of note Issue has been granted to the RBI.

Price-Output Determination under Monopoly:-

Under Monopoly, the Average Revenue curve will be a down-ward sloping curve. Further, the
Marginal Revenue curve wills also a down-ward sloping curve but it will be steeper (less) than
the “AR” curve. The principle of profit maximization under the Monopolist will also maximize

his profit by equating the marginal cost with the marginal revenue. The Monopolist will be in
equilibrium when he gets maximum profit.

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Explanation:-
X-axis represents output and Y axis represents revenue and cost. AR is Average Revenue
curve. MR is Marginal Revenue curve. AC is Average cost curve and MC is Marginal cost
curve. The Monopolist, comes to equilibrium at point “E‟ where MR = MC and produces
“ON” units of the commodity.

At this level of output, the Average Revenue (price) is “OP” (NQ) and Average cost is “NR”.
Therefore, profit per unit = NQ – NR ie., RQ. The total output is ON. Thus, the total profit
per unit of output multiplied by total output. ie., RQXSR (SR = ON). The total profit,
therefore, is “PQRS” (the shaded area)

Control of Monopoly:-
1. Monopoly may be controlled by legislative measures. Anti-monopoly legislations should be
enacted to check the growth of monopoly.
2. The Government may promotes measures of competition by giving licenses, permits etc.,
3. Establishments of consumer’s movement will effectively restrain monopoly.
4. The Government can also regulate a Monopoly through taxation.
5. Establishment of co-operative organizations will control monopoly in course of time.
6. Nationalization of harmful monopolies will put an end to the Monopoly.
Discriminating Monopoly (or) Price Discriminating:-
Meaning:-
Price Discrimination means the charging of different price from different consumers for the
same commodity at the same time. It is also called Discriminating Monopoly.
Kinds of Price Discrimination
Personal Discrimination:-
Personal Discrimination means that the Monopolist may charge different prices from different
consumers for the same commodity on the basis of their ability to pay. For ex: - The Doctor
may charge higher fees to the rich patient and charge lower to the poor patient for the same
service render.
Age Discrimination:
It means that the monopolist may charge different prices on the basis of the ages of buyers.
Usually, buyers are grouped into children and adults. For ex:- Railways may charge half a ticket
for children and full ticket for adults.

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Place Discrimination:
Place Discrimination means that the monopolist having different markets in different regions
may sell the same commodity at a lower price at one market at a higher price at another market.
For ex:- Hill stations produced goods are very low price, but in plain areas the prices are very
high.
Trade Discrimination:-
The Monopolist may change different prices for the some commodity on the basis of the uses of
the commodity. This is also called “Use Discrimination”.
For ex:- Electricity Board usually charges a higher rates for industrial purposes and cheaper
rates for domestic purposes.

Degrees of Price Discrimination:-

According to A.C. Pigou, there are three degrees of price discrimination.
(i)In the first degree, the monopolist sells each unit at different prices to different consumers. The
monopolist will not allow any consumer’s surplus for the buyer. Under this, consumers are
exploited to the maximum level. Consumers are asked to pay maximum price, which they are
willing to pay.
(ii) In the second degree of discrimination the buyers are divided into two or more groups and
each group is charged different prices by the monopolist. If the monopolist can negotiated and sell
at more than two prices, he will receive a still larger part of the consumer’s surplus. This is called
second degree price discrimination.

(iii) In the third degree, the markets are divided into many sub-markets and each sub- market is
charged differently by the monopolist. The cost of producing a product is the same irrespective of
the price at which it will be sold; profits from price discrimination are larger as compared with
those that would be obtained from selling all the output at the uniform price.

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Meaning:-
“Duo” means “Two” and poly means “Selling”. Therefore, Duopoly refers to a market situation
in which there are only two sellers selling homogenous products. The two firms may either
resort to competition (or) collusion.
Duopoly is a special case of Oligopoly in which there are only two sellers. Both the sellers are
completely independent and no agreement exists between them.
A seller may assumed that his rival is unaffected by what he does In that case, he takes only his
own direct influence on the price.
Features of Duopoly:-
1. There are only two sellers in the market.

2. There is no product differentiation and hence goods are homogeneous.

3. The consumers are indifferent between the two sellers and the same price must be
charged by both, in the long run.

Pricing under Duopoly:-

Meaning:-
Augustin Cournot, a French Economist has explained the pricing under Duopoly by taking an
example of two mineral springs situated side by side and owned by two persons who market
their commodity.
Assumptions:-
1. There is no product differentiation.
2. There is no cost of production.
3. The demand curve for both sellers is a straight line demand curve.
4. The two sellers never change the output. ie., output of rival is fixed.
5. The average cost and marginal cost become zero.

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Diagram

Illustration/Explanation:-
DM is the total Demand curve of two sellers and MC and MR (as assumed) are zero.
Suppose ON = NM is the maximum daily output of each mineral spring. The total output of both
is (ON + NM) is equal to OM.
If the two producers produce the maximum Quality OM and is offered in the market. The price
will be zero. This is because the cost of production is assumed to be zero.
Cournot assumed that the first producer. Mr. X starts production before Mr. Y enters into the
field. Mr. X will produce ON (ie., ½ OM) Quantity and fix the price at OP.
Hence, the maximum profit would be “ONCP” as shown in Diagram. Now the second producer
Mr. Y enters into the field. He will produce NQ (ie., ½ NM) Quantity and fix the price at OP1.
Now, the total output of two sellers will be ON + NQ (ie., OQ). Which is ¾ of the total output of
the two springs (ie., ¾ of OM).
Since the second producer Mr. Y has fixed the price at OP1 which is less than the price fixed by
Mr. X (OP). Mr. X should also bring down the price from OP to OP1.
Hence cannot sell at a higher price (ie., OP), since the product is homogeneous.
Now the profit for the first producer. (Mr. X) is ONAP1 and profit for the second producer
(Mr. Y) is NQBA. From this, the anticipated profit for Mr. X has comes down ONCP to ONAP1
because of the second producer fixes the price at OP1. The Two producers will come to
equilibrium finally.

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Oligopoly:-
Meaning:-
“Oligo” means “a few” and “poly” means “selling”. Thus, oligopoly refers to a market situation
in which there are “more than two” or a “few” sellers selling either homogeneous products (or)
close substitute product but not perfect substitutes.
Definition:-
Prof. Stigler defines oligopoly as that, “Situation in which a firm bases its market policy in part
on the expected behavior of a few close rivals”.
Characteristics or Features of Oligopoly:-
1. There are more than two or few sellers in the market.
2.The sellers sell the homogenous products (or) products which are having close
substitutes.
3. The interdependence between the firms. That means, the price and output decisions of one
firm will affect the other.
4. There is indeterminate demand. That means, no firm is oligopoly can forecast the nature and
position of its demand. Because, it depends upon the price and output & decisions of other
firms.
5. The large number of amount has to spend a expenditure as selling cost incurred by
competing firm.
6. There is price rigidity, which means the prices in oligopoly are constant.
7. Sometime a firm takes up leadership in fixing the price of the product.

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Kinds or Classification of Oligopoly

1.Pure or Perfect Oligopoly and Differentiated or Imperfect Oligopoly

An Oligopoly is said to be pure (or) perfect when it sells homogenous product. Ex:- Ullavar
Sandi (Vegetable Market). Oligopoly is Imperfect (or) Differentiated when it sells different
products. Ex:- Gas cylinder and Electric stove.
2. Open Oligopoly and Closed Oligopoly

Open Oligopoly refers to the market situation in which the new firms are free to enter into the
market and complete with the existing firm. Ex: - All types of washing soap.

Closed Oligopoly refers to the market situations in which the new firms cannot enter into the
market. Ex: - Reserve Bank of India.

3. Collusive Oligopoly and Non-Collusive Oligopoly (or) Competitive Oligopoly

An Oligopoly in which firms have agreement or collusion regarding price and output is called as
collusive oligopoly. Ex: - Electricity generation from windmill between government and
privatization charges per unit).

Which firms have no such agreement (or) collusion is called Non-collusive (or) competitive
oligopoly. Ex:- Private college fee and Government college fee for students.

4. Partial Oligopoly and Full Oligopoly

A Partial Oligopoly is one which is dominated by the price leader. Ex:- U.S.A is fixing crude oil
price for supplying whole world.

Fuel Oligopoly is one which has no such price leader. Ex:- Multiplex cinema theatre is fixing a
price for five screen show, same price, at same time

5. Syndicated Oligopoly and Organized Oligopoly

Syndicated oligopoly refers to the market situation in which the firms sell their products through
a centralized syndicate. Ex: - LED Samsung T.V SET is selling a same price all over states
expect union territories.

In Ration shop (or) the products are charging through public Distribution system. Organized
oligopoly is one in which the firms organized themselves in a central organization for
fixing prices, output and Quotas.

Ex: - While we getting a Job in government side, they allotted Quotes, pay scale structure, and
grade of Appointment.

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Kinked Demand Curve:-

Prof. Paul. M. Sweezy has rushed the „Kinked Demand Curve”, to explain price rigidity under
oligopoly. This model represents a condition in which the firm has no incentive either to increase
(or) to decrease the price, but keeps the price rigid.

This is because, the firm fears that if the firm increases the price, it will lose its customers and if
the price is decreased, the rival firms will decrease the price and hence profits of all firms would
be reduced. Hence, the firm sticks on the present price, until a drastic change in its demand and
cost conditions.

Diagram

Explanation:-

DD1 is the demand curve and MRMR is the marginal Revenue curve. The demand curve has a
kink at the point ‟p‟. QP is the price at which the firm is selling OQ units of the products. The
anticipated demand of the firms is DP. That is, above the point. The Demand curve DP is elastic.

This shows that if the firm increases the price above QP while all the other firms maintain QP
price, it will lose its customers. Hence, the demand for the product of the firm would fall and
consequently the total revenue and profit of the firm would be reduced.

So, the firms keep the price rigid at QP. Below the price QP, the anticipated demand of the firm
will be PD1 which is in elastic. It is in elastic, because if the firm reduces the price, that price
will be followed by other firms and hence the profits of all firms would be reduced. Hence, the
firm sticks on the present price QP.

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At this level, the MR curve is negative thus, when the demand curve is DP, MR is positive and if
the demand curve is PD1, MR is negative. So the firm keeps the price rigid at QP. The firm has
no scope of better profit in either way.

There is a gap or discontinuity (AB) in the MR curve below the kink point i.e., between MR and
MR1. The gap depends upon the elasticity of demand above and below the kink. The gap will be
greater if the elasticity is greater above the kink and in elasticity is greater below the kink.

Monopolistic Competition:-
Meaning:-
Monopolistic Competition refers to the market situation in which there are many producers‟
products which are close substitutes.
Definition:-
According to Joe S. Bain, “Monopolistic Competition is found in the Industry where there is a
large number of small sellers selling differentiated but close substitute products.”
Characteristics (or) Features of Monopolistic Competition:-
1. There should be a large number of sellers.
2. The products produced by the producers have close substitutes.
3. The producer has to incur selling cost.
4. There is freedom of entry and exist of firms into the Industry.
5. Different firms produce different varieties of product i.e., Product Differentiation
6. It depends upon imperfections in the knowledge of the buyers.
7. The firm has a price policy, and he is a price market
8. It is the “Non-price competition”.

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Short run Equilibrium (Super Normal Profit):-

In the Diagram Equilibrium point “E”, where MR = MC. The price (Average Revenue) is MQ
(OP), Average cost is MR and output is OM. Super Normal profit per unit of output is difference
between AR and AC. Therefore, RQ is the super normal profit per unit of output. The total
output is OM. Therefore, total super normal profit is PQRS (shaded area) i.e., Total output
multiplied super normal profit per unit of output.

Diagram:-

Long run Equilibrium (Normal Profit)

In the Diagram the equilibrium point is “E”, where MR = MC. Average Revenue is MQ and
average cost is also MQ. Therefore, AT (i.e., price) is equal to AC and therefore no super normal
profit, but only normal profit, which included in the cost of production.

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Selling Cost
Meaning:-
Chamberlin has introduced the concept of selling cost in the theory of the firm. Literally selling
cost means the cost of selling a product in the market.

It includes the cost (expenses) incurred on advertising and publicity, commissions and salaries of
sales manager and other staff and margins granted to dealers in order to push up the sales of the
product.
Definition:-

E.H. Chamberlin defines selling cost as, “Cost incurred in order to alter the position of the shape
of the demand curve for a product”.
Production Cost (or) Cost of Production:-

Production cost refers to all the expenses incurred in producing a product. It includes the cost of
raw materials, salaries and wages to the workers, power, packing, transporting the commodity to
market etc
How selling cost affect Demand?
It affects the demand of the consumers by the following two ways.

1) Imperfect knowledge of the buyers.

2) The possibility of altering of the people wants.

Advertisements included the old buyers to buy more and also attract the new buyers. This
means, an increase in demand. The new demand curve representing an increasing in demand
due to the selling cost will be above the old demand curve.

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Wastes (or) Defects of Monopolistic Competition:-

1. Excess Capacity:-
A firm in the long-run equilibrium produces an output which is less than socially optimum (or)
ideal output. This difference between the capable of producing output and the output actually
producing of the firm is called Excess Capacity.
2. Unemployment:-
The firm is producing less than the socially optimum output. Therefore, the firm do not utilise
the resource to the fullest extent and this will result in unemployment of resources in the country.
3. Cross Transport:-
If firms cater to the needs of the locality. Transport expenditure may be minimized. For instance,
Baniyan (or) T-Shirt produced in Tiruppur will be sold at Punjab (or) Ludhiana and those
produced in Punjab will not be sold at Tiruppur. This involves a waste due to cross transport
between Tiruppur and Punjab.
4. Wasteful Advertising:-
It is generally believed that competitive advertisements under Monopolistic competition lead to
increase in prices of commodities. If competition is perfect, there is no need for such expenditure
to be incurred.
5. Too many Varieties of Goods: -
This is undue proliferation of styles, shapes, sizes and colours. For ex:- We have too many
varieties of T-shirts, TV (LED), Washing machine etc., No one wants to eliminate variety
entirely.

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Difference between prefect competition and Monopoly

S.No classify Perfect Competition Monopolistic Competition

It refers to a market situation It refers to a market situation
where there are very large no: in which there are large no: of
1 Meaning of buyers and sellers dealings firms closely related but
in homogenous product at a differentiated product.
price fixed by the market
The product sold are Products are different on the
homogenous, so buyers are basis of brand size, colour,
2 Nature of the Product willing to pay some price for shape, etc., so a fixed in a
all products which leads to position to the price.
uniform price
Demand curve is perfectly Demand curve shapes
3. Demand Curve elastic as price remains the downward as more output can
same at all levels of Output be sold only at less price.
Firm is a price taker as price is
Firm is neither a price taker
determined by the Industry nor a price maker but has
4. Price
partial control over price due
to product differentiation.
Buyers and sellers have perfect Sellers and buyers do not have
knowledge about market perfect knowledge due to
5. Level of Knowledge conditions product differentiation and
selling cost incurred by the
seller
No selling cost are incurred as Heavy selling costs are
buyers and sellers have perfect incurred on sales promotion
6. Selling Cost knowledge about market due to lack of perfect
condition knowledge among buyers and
sellers.

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 KASC B.COM 2021-2022 MICRO ECONOMICS

Section –A
Choose the correct Answer
1. Homogeneity of goods is a characteristic of _____ market
(a) Perfectly competitive (b) Monopoly (c) Monopolistic (d) Duopoly Ans (a)
2. The monopolist charges different prices from different buyers called ___ discrimination
(a) Personal (b) Place (C) Time (d) Product Ans (a)
3. Few sellers is a feature of _____
(a) Monopoly (b) Oligopoly (C) Perfect competition (d) Monopolistic Competition Ans (b)
4. Market which has two firms is known as _______
(a) Oligopoly (b) Duopoly (c) Monopoly (d) Bilateral monopoly Ans (b)
5. There is a single seller of a commodity which has no close substitutes can be termed as __
(a) Pure monopoly (b) Duopoly (c) Monopoly (d) Pure monopoly Ans (c)
6._____ prices are statutorily determined by the govt.on commodities like petroleum, steel
(a) Administered (b) Differential price (c) Cost plus (d) Marginal cost Ans (a)
7. Price rigidity is one of the features of ______
(a) Oligopoly (b) Duopoly (c) Monopolistic (d) Monopoly Ans (a)
8. Under which competition the individual firm is price taker _____
(a) Perfect competition (b) Discriminating monopoly (c) Monopolistic competition Ans (a)
9. When there are the large number of buyers and sellers the market structure is called ___
(a) Perfect competition (b) Monopoly (c) Monopolistic (d) Oligopoly Ans (a)
10. Monopolistic competition comes under ____ competition
(a) Perfect (b) Imperfect (c) Pricing (d) Cost Ans (b)
11. In perfect competition a firm increases profit when ___ exceeds the ____
(a) TC,TR (b) MC,MR (c) AR,AC (d) TR,TFC Ans (b)
12. In a monopolistic competitive market the number of firm is ___
(a) One (b) two (c) few (d) Very large Ans (d)

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13. In the market period, the supply of a commodity is ______

(a) Fixed (b) Variable (c) Diminishes (d) Surplus Ans (b)
14. Pricing under monopolistic competition is influenced by ___
(a) Selling cost (b) Average cost (c) Marginal cost (d) Total cost Ans (a)
15. In monopolistic competition ______ is differentiation
(a) Product (b) service (c) cost (d) Income Ans (a)
16. The same commodity produced under a single control at different prices to different
Seller is _______
(a) Price Discrimination (b) Place Discrimination (c) Age Discrimination (d) None

Section –B
Answer the following question
17. Write the features of prefect competition
18. Describe the market structure
19. Explain the features of monopoly
20. Discuss the kinds of monopoly
21. Examine the features of monopolistic competition
22. Write the types of oligopoly
23. Define the features of oligopoly

Section –C
Answer the following question
24. Briefly explain the price and output determination under short run and long run perfect
Competition.
25. Write the price and output determination under monopolistic competition
26. Illustrate the kinked demand curve of oligopoly
27. Elaborately discuss the cournot model of duopoly
28. Examine the price and output determination under monopoly.
29. Discuss the discriminating monopoly

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30. Describe the Wastes and defects of monopolistic competition.

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