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NCERT Class 11 Economics Chapter 14 Non-competitive Markets
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Non-competitive Markets
Chapter: 14
PART – (B) INTRODUCTORY MICROECONOMICS
TEXTUAL QUESTION ANSWERS
1. What would be the shape of the demand curve so that the total revenue curve is.
(a) A positively sloped straight line passing through the origin?
Ans: The shape of the demand curve would be horizontally parallel to the X-axis as indicated in the figure.
The figure shows the shape of the demand curve or AR. This curve also indicates that the marginal revenue and the demand are the same as price remains constant at all levels of output.
(b) A horizontal line?
Ans: A horizontal total revenue (TR) line signifies a downward-sloping demand curve. This occurs because for TR to remain constant as output increases, the price must decrease proportionally. Therefore, the relationship between price and quantity demanded is inverse, resulting in a demand curve that slopes downward from left to right.
2. From the schedule provided below calculate the total revenue, demand curve and the price elasticity of demand:
| Quantity | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 |
| Marginal Revenue | 10 | 6 | 2 | 2 | 2 | 0 | 0 | 0 | -5 |
Ans:
| Quantity | Marginal Revenue | Average Revenue | Total Revenue | Price Elasticity of Demand |
| 1 | 10 | 10 | 10 | – |
| 2 | 6 | 8 | 16 | 5 |
| 3 | 2 | 6 | 18 | 2 |
| 4 | 2 | 54.5 | 20 | 2 |
| 5 | 2 | 4.5 | 22 | 2.5 |
| 6 | 0 | 3.6 | 22 | 1 |
| 7 | 0 | 3.1 | 22 | 1.2 |
| 8 | 0 | 2.7 | 22 | 1.1 |
| 9 | -5 | 1.9 | 17 | 0.38 |
In the table, the price elasticity of demand is measured by considering the percentage change in price and the percentage change in demand.
3. What is the value of the MR when the demand curve is elastic?
Ans: When the demand curve is elastic, marginal revenue will be positive.
The figure indicates that the marginal revenue and average revenue curves are downward sloping from left to right.
4. A monopoly firm has a total fixed cost of 100 and has the following demand schedule:
| Quantity | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
| Marginal Revenue | 100 | 90 | 80 | 70 | 60 | 50 | 40 | 30 | 20 | 10 |
Find the short run equilibrium quantity, price and total profit. What would be the equilibrium in the long run? In case the total cost was ₹1000, describe the equilibrium in the short run and in the long run.
Ans: In the short run, the equilibrium price and quantity is determined at a place where a firm earns maximum profit.
| Quantity | Price | Total Revenue |
| 12345 | 10090807060 | 100180240280300 |
| 6 | 50 | 300 |
| 78910 | 40302010 | 280240180100 |
The table shows that at the 6th unit, a firm is maximising its profit. So, the equilibrium price is 50 and the equilibrium quantity is 300.
The cost of production in the short run is considered zero. So, the profit is:
Profit = Total Revenue – Total Cost
= 300 – 0 = 300
Thus, the profit is 300.
In the short run, the equilibrium quantity is determined at the level where the total revenue is maximum, i.e., 300 units.
Calculation of profit in the long run:
Profit = Total Revenue – Total Cost
= 300-1,000 = – 700
Thus, the profit in the long run is -700. This indicates that a firm is earning negative profits in the long run.
5. If the monopolist firm of Exercise 3, was a public sector firm. The government sets a rule for its manager to accept the government fixed price as given (i.e., to be a price taker and therefore behave as a firm in a perfectly competitive market), and the government decides to set the price so that demand and supply in the market are equal. What would be the equilibrium price, quantity and profit in this case?
Ans: A monopolist firm will behave like a firm in a perfectly competitive market as it has to accept the price determined by the government.
The price set by the government establishes the equilibrium of market demand and market supply. The following is a graphical representation of the equilibrium price and quantity.
The figure shows that the equilibrium level is determined by the intersection of demand and supply curves.
Firms earn normal profit when the price is determined by the government or the price is determined by the market forces in the long run.
6. Comment on the shape of the MR curve in case the TR curve is a
(i) positively sloped straight line.
Ans: The shape of the marginal revenue curve is horizontal when the total revenue curve is positive. The positive slope of the TR curve indicates that there is constant increase in the marginal revenue.
(ii) horizontal straight line.
Ans: The shape of the marginal revenue curve is horizontal and coincides with the quantity, when the total revenue curve is a horizontal straight line. The horizontal straight line slope of the TR curve indicates that the marginal revenue is zero.
7. The market demand curve for a commodity and the total cost for a monopoly firm producing the commodity is given by the schedules below. Use the information to calculate the following:
| Quantity | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Price | 52 | 44 | 37 | 31 | 25 | 22 | 19 | 16 | 13 |
| Quantity | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Total Cost | 10 | 60 | 90 | 100 | 102 | 105 | 109 | 115 | 125 |
(a) The MR and MC schedules.
Ans:
| Quantity | Price | Total Revenue | Marginal Revenue | Marginal Cost | Total Cost |
| 012345 | 524437312622 | 0447493104110 | -443019116 | -50401023 | 106090100102105 |
| 6 | 19 | 114 | 4 | 4 | 109 |
| 78 | 1613 | 112104 | -2-8 | 1610 | 115125 |
(b) The quantities for which the MR and MC are equal.
Ans: As indicated in the table, the marginal revenue and marginal cost are equal at the 6ᵗʰ unit of quantity.
(c) The equilibrium quantity of output and the equilibrium price of the commodity.
Ans: The equilibrium quantity is determined at the level where marginal cost equals marginal revenue. In the table, marginal cost equals marginal revenue at a quantity of 6 units. At this quantity, the market price is ₹19.
(d) The total revenue, total cost and total profit in equilibrium.
Ans: At the equilibrium level, the total revenue is 114 and the total cost is 109. The profit can be calculated by considering the total revenue and total cost.
Profit = Total revenue – Total cost
Profit 114 – 109
Profit = 5
Thus, the profit is ₹5.
8. Will the monopolist firm continue to produce in the short run if a loss is incurred at the best short run level of output?
Ans: A monopolist firm can earn losses in the short run if the price is less than the minimum of AC. But if the price falls below the minimum of AVC then the monopolist will stop production. The firm will continue to produce when the price is in between the minimum of AVC and the minimum of AC.
9. Explain why the demand curve facing a firm under monopolistic competition is negatively sloped.
Ans: A monopolistic competitor operates in a market with many similar but not identical products, creating a high degree of product differentiation. As a result, the demand curve for a monopolistic competitor slopes downward because consumers have the ability to choose from close but not perfect substitutes.
10. What is the reason for the long run equilibrium of a firm in monopolistic competition to be associated with zero profit?
Ans: The competition increases and the firm can no longer charge high prices. It, therefore, limits the average price to average cost and no longer earns supernormal profit.
11. List the three different ways in which oligopoly firms may behave.
Ans: Discuss non-price competition and how firms can differentiate their products to attract customers.
Final Answer: Oligopoly firms can behave through collusion, price leadership, and non-price competition.
12. If duopoly behaviour is one that is described by Cournot, the market demand curve is given by the equation q = 200 – 4p, and both the firms have zero costs, find the quantity supplied by each equilibrium and the equilibrium market price.
Ans: As given,
Market demand curve, q = 200 – 4p
A duopolistic firm prefers to supply half of the market demand considering the straight line demand curve and the total cost being zero.
At zero price, the market demand is 200 units.
Firm ‘A’ faces a market demand of 200 units considering that Firm ‘B’ is not producing anything, i.e.,1/2 × 200
Thus, the goods supplied by Firm A = 100
Now, the market demand faced by Firm B = 100(200 – 100)
The supply of Firm B = 50
Firm B is supplying 50 units, so Firm A would face the demand for 150 units (200-50)
i.e.,1/2 × 150
Supply of Firm A = 75
The following table indicates the quantity supplied by Firm A and Firm B.
If we calculate the output supplied by Firm A, then it would be 200/3 units. Firm B would supply the same output.
Thus, the market supply would be 200/3 + 200/3 = 400/3
The equilibrium price can be calculated as below:
Q = 200-4p 4p
4p = 200-q p
Thus, the equilibrium price would be 50/3.
13. What is meant by prices being rigid? How can oligopoly behaviour lead to such an outcome?
Ans: “Price rigidity” means that prices remain relatively stable and unresponsive to changes in market conditions like demand or cost, and in an oligopoly, this happens because firms are hesitant to change prices due to the fear of competitive retaliation from other few dominant firms in the market, often leading to a situation where they all maintain similar prices to avoid price wars; essentially, they are afraid to rock the boat by altering their prices, causing price rigidity. Additionally, collusion or tacit agreements may discourage price changes. Instead of competing on price, oligopolists focus on non-price competition like advertising and product differentiation to maintain market share.
