Monopoly and Competition PDF

LONGANSWERTYPEQUESTI ONS QUE( 1)- Makeanot eont hechar act eri sti csofmonopol i s...

LONGANSWERTYPEQUESTI ONS QUE( 1)- Makeanot eont hechar act eri sti csofmonopol i sti ccompet it ion mar ket. Monopol i sti cal l yCompet it ivei ndust ri eshav ethef oll owi ngchar act eri sti cs: 1.Manysmal ltomedi um si zedf ir ms 2.Si mil arpr oduct ,butnoti dent ical 3.Lesst hanper fecti nfor mat ion, fir m hassomecont rol overpr ice 4.Easy ,butnotf ree, ent ry. Monopol i sti cCompet it ionwor ksmuchl i kemonopol y,buti nequi l ibr ium, it hassomef eat uresofper fectcompet it ionasseeni nthegr apha monopol i sti cal l ycompet it ivef ir mfacesadownwar dsl opi ngdemandcur ve f ori tsout put.But ,si ncepr oduct sint hisi ndust ryar esi mil ar, though di ff erent iat ed, thecur vei srel ati vel yfl at, ref lect ingt heav ail abi l ityof subst it utes. Inl ong- runequi l ibr ium, aft erent ryoccur s,wef indt hef ir m pr oduci ngatpoi ntFi nthenextdi agr am.Her e,wesee: 1.P>MC 2.P>minAC 3.3.MaxPr ofi t=0 Wehav etwooft hei nef fi cienci esofmonopol y,andoneoft heef fi cienci es ofper fectcompet it ion. Thi sfi rm st ruct urei sint ermedi atebet weent het wo. Theset ypesoff ir mswi l luseadv ert isi ngt oshi ftt hedemandcur vef ort hei r pr oductoutt other ight ,andt omakei tst eeper ,i. e., toconv inceconsumer s t hatt hei rpr oducthasno" goodsubst it utes". Thi sisanat temptt olowert hepr iceel ast ici tyofdemand. Monopol i sti cCompet it ionwi l lleadt odi ff erentv ersi onsoft hepr oduct ,but hi gherpr icest hanper fectcomept it ion. Wewi l lgetv ari ety ,butmustpayf or t ogeti t.Besi desadv ert isi ng, weshoul dexpectgi ve- away s,coupons, war rant ies, etc. QUE( 2)- Whatdoy oumeanbyol igopol y?Wr it eadet ail ednot eoni t. OLI GOPOLY Ol i gopol yist hef orm ofmar keti nwhi cht her ear efewsel l ersorf ewl arge f ir ms, int ensel ycompet ingagai nstoneanot herandr ecogni sing i nter dependencei nthei rdeci sion- maki ng. Feat uresofOl igopol y ( a)FewSel l ers ( b)Al lthef ir mspr oducehomogeneousordi ff erent iat edpr oduct. ( c)Underol i gopol ydemandcur vecannotbedet ermi ned.I thasaki nked demandcur ve. ( d)Al lthef ir msar eint erdependenti nrespectofpr icedet ermi nat ion. ( e)Pr icer igi dit y. Ont hebasi sofpr oduct ion, oli gopol ycanbecat egor isedi ntwocat egor ies: ( i) Col l usi veol i gopol yist hatf orm ofol i gopol yinwhi chal lthef ir msdeci de t oav oidcompet it ionanddet ermi net hepr iceandquant it yofout putont he basi sofcooper ati vebehav iour. ( ii )Non- col l usi veol i gopol yist hatf orm ofol i gopol yinwhi chal lthef ir ms det ermi net hepr iceandquant it yofout putaccor dingt otheact ionand r eact ionoft her ival fir ms. Ont hebasi sofpr oductdi ff erent iat ion, Oli gopol ycanbecat egor isedi ntwo cat egor ies: ( i) Per fectOl i gopol y:TheOl i gopol yisper fectorpur ewhent hef ir msdeal in t hehomogeneouspr oduct s. ( ii )Imper fectOl i gopol y:Wher east heOl i gopol yissai dtobei mper fect , whent hef ir msdeal inhet erogeneouspr oduct s,i.e.pr oduct sthatar ecl ose butar enotper fectsubst it utes. QUE( 3)- Expl ainanyf ivepoi ntsofdi sti nct ionbet weenmonopol yand monopol ist iccompet it ion. Ans.Di ff erencebet weenmonopol yandmonopol i sti ccompet it ion Basi s Monopol y Monopol ist iccompet it ion Numberof Undert hismar ket ,ther eisa Ther eisal argenumberofbuy ersand sel l ersand si ngl esel l erofacommodi tyand sel l ers.Al so, thesi zeofeachf ir missm  Eachf ir m hasal i mit edshar eoft he buy ers l argenumberofbuy ers. mar ket. Nat ureof I tsel l sapr oductwhi chhasno I tsel l spr oduct swhi char edi ff erent iat ed t hepr oductcl osesubst it utes. hencecl osesubst it utesofeachot her. Fr eeand Rest ri cti ononent ryandexi tof Fr eedom ofent ryandex itoff ir ms exi t f ir ms Sel l ingcostVer ylowsel l ingcost Ver yhi ghsel l ingcost QUE( 4)- Giv ingr easons, dist ingui shbet weent hebehav iorofdemandcur ve underper fectcompet it ionandmonopol ist iccompet it ion. Ans.( i)Demandcur veoft hef ir m underper fectcompet it ion: Demandcur vei sper fect lyel ast ic.I tmeanst hataf ir m cansel lanyamount Oft hecommodi tyatt hepr evai l ingpr ice.Ev enaf ract ional risei npr ice woul dwi peoutent ir edemandf ort hef ir m’spr oduct.Fi rm’ sdemandcur ve i sindi cat edbyahor izont alst rai ghtl i nepar all elt oX- axi s.Thi sshowst hat t hef ir m hast oacceptt hepr iceasdet ermi nedbyt hemar ketf orcesof suppl yanddemand; itcansel lwhat everamounti twi shest osel latt his pr ice. ( ii )Demandcur veoft hef ir m undermonopol i sti ccompet it ion.:. Demandcur vei smor eel ast ic.Undermonopol i sti ccompet it ion, thef ir m f acesanegat ivel ysl opedemandcur ve.I tmeanst hatal argequant it yof t hecommodi tycanbesol dbydecr easi ngi tspr ice.Butdemandcur veher e i smor eel ast ict hant hedemandcur vef acedbymonopol yfi rm.I tis becauseofav ail abi l ityofcl osesubst it utesi nthemar ket. QUE( 5)- Stat eanyf ourf eat uresofper fectcompet it ion. Ans.Feat uresofper fectcompet it ionar easf oll ows: ( i)Ver ylar genumberofbuy ersandsel ler s Ther ear ever ylar genumberofbuy ersandsel l ersar epr esenti nthemar ket asar esul tofwhi chsi zeofeacheconomi cagenti ssosmal lascompar ed t othemar kett hatt heycannoti nfl uencet hepr icet hrought hei rindi vi dual act ions. ( ii )Homogeneouspr oduct s Thesear ethepr oduct swhi char eident ical inqual i ty, shape, sizeandcol our. So, nopr oduceri sinaposi ti ont ochar geadi ff erentpr iceoft hepr oducti t pr oduces.Auni for m pr icepr evai l sint hemar ket.Inaper fect lycompet it ive mar ket ,commodi tymustbehomogeneous( ident ical ).Thus, thebuy ersf ind nor easont opr efert hepr oductofonesel l ert othepr oductofanot her. ( ii i)Fr eedom ofent ryandexi t Fi rmsundert hisf orm ofmar ketar efr eet oleav ethei ndust ryi ftheyar e suf fer ingf rom l oss, ont heot herhandpr ofi tscoul dat tract snewf ir ms. ( iv)Per fectknowl edge Eacheconomi cagenthav eaper fectknowl edgeaboutt hemar ket condi ti onsast heyknowwel laboutt hepr evai l ingpr icesi nthemar ketet c. QUE( 6)Whyaper fectcompet it ionf ir mispr icet akerandamonopol ist f ir misapr icemaker ?Expl ainbr ief ly. Ans.Underper fectcompet it ion, ther ear ever ylar genumberoff ir ms pr oduci nghomogeneouscommodi ty.Ani ndi vi dual fir minsuchamar ket cannotchangepr iceoft hecommodi ty.Pr icei sdet ermi nedbyt hemar ket f orcesofdemandandsuppl y.Al lthef ir msi nthei ndust rysel lthei rout put att hegi venpr ice.I tist her efor esai dthataf ir m underper fectcompet it ion i sapr icet aker. Amonopol i sti sapr icemakerbecausehei sasi ngl esel l eroft hepr oduct i nthemar ket.So, ther eisnocompet it ion.Ther ear enocl osesubst it utesof t hemonopol ypr oduct.So, ther eisnof eart hatbuy erswoul dshi ftf rom one pr oductt otheot hert oanysi gni fi cantext ent.Ther ear enumberofl egal , t echni cal ornat ural bar ri erst otheent ryofnewf ir ms.So, thatt her eisno i ncr easei nthemar ketsuppl y.