Non-Competitive Markets - Class 11 Commerce Economics - Extra Questions

The marginal revenue and average revenue curves look alike under monopoly and monopolistic competition because in both the market situations, more can be sold only by lowering the price of the product.

Price  (Rs.)	Output (units)	Total Revenue    (Rs.)	Marginal Revenue (Rs.)
10	1	10	10
7	2	14	4
5	3	15	1
3	4	12	-3

Yes, it is true. Under perfect competition, AR and MR are constant. Constant MR implies TR increases at a constant rate. Therefore, TR is shown as a straight line sloping upward from the origin and it shoots from the origin. When output =0,TR=0.

$$TR = Rs. 5000, \, P =AR = Rs. 50$$
$$TR = P \times Q$$
$$Q = \dfrac {TR}{P}$$
     $$= \dfrac{5000}{50}= 100$$
When $$TR = RS. 4500, \,P (=AR) = Rs. 90$$
$$Q= \dfrac{4500}{90}= 50$$
Market demand falls by $$(50-100) units = 50 units$$.

Yes. In perfect competition, producer's price line shows the highest price elasticity of demand which is infinity. This is because producer's price line under perfect competition is a horizontal straight line.

Output (Units)	Price  (Rs.)	Total Revenue         (Rs.)	Marginal Revenue             (Rs.)
1	18	18	18
2	16	32	14
3	14	42	10
4	12	48	6
5	10	50	2

Average revenue and marginal revenue curves under monopoly and monopolistic competition slope downward from left to right. However, AR is more elastic under monopolistic competition than under monopoly.

A firm produces more of a commodity even when price is reducing only in a situation when it finds that the difference between $$TR$$ and $$TC$$ is increasing, so that its total profit $$(TR - TC)$$ is rising. It will stop production when profit is maximum or when the difference between $$TR$$ and $$TC$$ is maximum.

Oligopoly is a form of the market in which there are large number of buyers, but only a few big sellers of a commodity.

Monopoly is a market form with a single seller and many buyers of a commodity, with no close substitutes.

Monopolistic competition is a form of the market with many buyers and sellers, where differentiated product is sold with a partial control over price.

Yes, it is true. In the long period, level of output under monopoly is less than under perfect competition. This is because under perfect competition, long period equilibrium is struck at the lowest point of AC. This indicates that the resources are most efficiently (optimally) utilised, offering us the highest possible output. Under monopoly, equilibrium at the lowest point (of AC) is not possible because price line slopes downward.

Monopolist is a price maker, of course. But, he fixes price on the basis of elasticity of demand for his product. Higher the elasticity of demand, lower the price, and vice versa.

There are only a few well known brands dominating the cell phone market in India. Also, each brand is facing a cut-throat competition. Both these characteristics point to oligopoly form of the market. Further, these oligopoly firms are engaged in a price competition. Which is why, over time cell phone prices in India have tended to decline. This points to the fact that cell phone market in India is more like non-collusive oligopoly rather than collusive oligopoly.

A market situation in which there are large number of firms which sell closely related, but differentiated products is called monopolistic competition. e.g., Market -Products Like Soaps, Toothpaste, Face Creams, Cool drinks, etc. 

Conditions needed for profit by a firm under perfect competition:

1. The price must Equal MR = MC = P. 
2. Marginal cost must be non-decreasing
3. In the short run, price must be grater than or equal to the average variable cost.

A monopsony is a market condition in which there is only one buyer. Like a monopoly, a monopsony also has imperfect market conditions. The difference between a monopoly and monopsony is primarily in the difference between the controlling entities.

Imperfect competition is a competitive market situation where there are many sellers, but they are selling heterogeneous (dissimilar) goods as opposed to the perfect competitive market scenario. Following are the forms of imperfectly competitive markets:

A market situation where there is a single seller selling a product which has no close substitutes is called monopoly.

Under imperfect competition, Average Revenue (AR) remains above Marginal Revenue (MR).

(i) Large number of sellers: The implication is that the proportion of total output produced by a single seller is so insignificant that the seller cannot influence the market price by his own actions by changing the quantity of output it produces. He has no option but to sell at the price determined at the industry level.
(ii) Homogeneous products: In a perfectly competitive market, buyers treat the product produced by different firms as homogenous. So, they are willing to pay the same price for products of different firms. No firm, therefore, can charge a price higher than the market determined price.

Oligopoly is a market condition in which only a few companies or firms sell homogeneous or differentiated goods.
For examples, automobile industries.

Monopoly refers to a market situation where there is a single seller selling a product which has no close substitutes.

The relationship between AR and MR is as follows: 
1. MR=AR at all levels of output.
2. MR curve is a straight line parallel to the x axis coinciding with AR curve.

The following defines the relationship between TR and AR, MR, price line:

The following is the relationship between AR and MR under imperfect competition:

For a non-viable industry, the supply curve lies above the demand curve.

Monopolistic competition refers to a market situation in which there are large number of firms which sell closely related but differentiated products.

The MR-MC approach is as follows:

a) Under perfect competition, it is a horizontal straight line parallel to X-axis because prices are determined by the industry are taken by the firms. It indicates that elasticity of demand is infinite.
b) It slopes downward under monopoly. More can be sold only at a lower price. But it is not very elastic. This is  because there are no close substitutes of a product in the market.

The following is the relationship between AR and MR under imperfect competition:

(a) False, when total revenue is maximum, marginal revenue is zero under imperfect market.
(b) False, marginal revenue is negative when total revenue is falling under imperfect market.
(c) False, when total revenue is falling, marginal revenue is also falling and becomes negative.

1. TR curve is a positively sloped straight line, then the MR curve will be a horizontal line. MR and demand curve is the same, and the price and AR remain constant for different output levels because of P=AR. This happens under perfect competition. MR is constant, therefore, TR increases at an increasing rate. That is why TR is a positively sloped straight line.
Fig 1 explains the above relationship

2. When the TR curve is a horizontal straight line, then MR is zero. MR curve is also a horizontal straight line and coincides with the x-axis. It is because the units sold are the same at every level of output and Marginal revenue is the additional revenue generated from the sale of an additional unit of output. Therefore, when TR is a straight line MR will be zero.
Fig 2 represent the above relationship

3. Under imperfect competition, when:
TR rises, MR falls
TR is maximum, MR is zero
TR is reducing, MR is negative.
Fig 3 defines the above relationship

Marginal revenue (MR) is the change in total revenue resulting from the sale of an additional unit of a commodity. MR = TR/Q. 

Output sold (Q)	TR	AR = TR x Q	MR
1	4	4	4
2	6	12	2
3	6	18	0
4	4	16	-2

(a) False, because when MR is positive and constant, AR will also be positive and constant. However, TR will increase at a constant rate.
(b) True, when every additional unit generates negative revenue, i.e. when MR is negative or less than zero, TR starts declining.

Disagree: There are 3 types of revenue.

1. Total revenue:  Total revenue (TR) refers to the amount of money realized by a firm on the sale of a commodity. Total revenue is expressed as follows.
   TR = P x Q, where TR – Total Revenue, P – Price, and Q – Quantity of the commodity sold. A firm sells 100 units of a particular commodity for Rs. 10 each. If you were to calculate the amount realized by the firm, the answer is simple – Rs. 1,000 (100 x 10). This is the total revenue for the firm.
   
2. Average revenue: Average revenue (AR) is simply the revenue earned per unit of the output. In simpler words, it is the price of one unit of the output. Average revenue is expressed as follows: AR=TR/Q,
   Where AR = Average Revenue, TR = Total Revenue, and Q = Quantity of the commodity sold. For example, a firm sells 100 units of a commodity and realizes a total revenue of Rs.1,000. Therefore, its average revenue is AR = Rs.1000/Rs.100 = Rs.10.
3. Marginal revenue: Marginal revenue (MR) is the change in total revenue resulting from the sale of an additional unit of a commodity. For example, consider a firm selling 100 units of a commodity and realizing total revenue of Rs. 1,000. Further, it realizes total revenue of Rs. 1,200 after selling 101 units of the same commodity. Therefore, the marginal revenue is Rs. 200. Marginal revenue is also defined as the rate of change of total revenue resulting from the sale of an additional unit of a commodity. Therefore, MR=ΔTR/ΔQ, where MR = Marginal revenue, TR = Total revenue, Q = Quantity of the commodity sold, and Δ = the rate of change.