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Non-Competitive Markets NCERT Textbook With Solutions PDF Free Download
Chapter 6: Non-Competitive Markets
A market structure in which there is a single seller is called a monopoly. The conditions are hidden in this single-line definition, however, need to be explicitly stated.
A monopoly market structure requires that there is a single producer of a particular commodity; no other commodity works as a substitute for this commodity; and for this situation to persist over time, sufficient restrictions are required to be in place to prevent any other firm from entering the market and to start selling the commodity.
In order to examine the difference in the equilibrium resulting from a monopoly in the commodity market as compared to other market structures, we also need to assume that all other markets remain perfectly competitive.
In particular, we need (i) All the consumers to be price takers; and (ii) that the markets of the inputs used in the production of this commodity are perfectly competitive both from the supply and demand side.
If all the above conditions are satisfied, then we define the situation as one of
monopoly in a single commodity market.
The market demand curve in Figure 6.1 shows the quantities that consumers as a whole are willing to purchase at different prices. If the market price is at p0, consumers are willing to purchase the quantity q0.
On the other hand, if the market price is at the lower level p1, consumers are willing to buy a higher quantity q1.
That is, the price in the market affects the quantity demanded by the consumers. This is also expressed by saying that the quantity purchased by the consumers is a decreasing function of the price.
For the monopoly firm, the above argument expresses itself from the reverse direction.
The monopoly firm’s decision to sell a larger quantity is possible only at a lower price.
Conversely, if the monopoly firm brings a smaller quantity of the commodity into the market for sale it will be able to sell at a higher price.
We compare the above outcome with what it would be under the perfectly competitive market structure.
Let us assume that there is an infinite number of such wells. Suppose a well-owner decides to charge Rs.5/bucket of water.
Who will buy from him? Remember that there are many, many well-owners. Any other well owner can attract all the buyers willing to buy for Rs. 5/bucket, by offering to sell to them at a lower price, say, Rs. 4/bucket..
Some other well-owner can offer to sell at a still lower price, and the story will repeat itself. In fact, competition among well-owners will drive the price down to zero. At this price, 20 buckets of water will be sold.
We have seen how a monopoly will typically charge higher prices than a competitive firm. In this sense, monopolies are often considered exploitative.
However, varying views have been expressed by economists concerning the question of monopoly.
First, it can be argued that a monopoly of the kind described above cannot exist in the real world. This is because all commodities are, in a sense, substitutes for each other.
This in turn is because of the fact that all the firms producing commodities, in the final analysis, compete to obtain the income in the hands of consumers.
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NCERT Solutions Class 12 Economics Chapter 6 Non-Competitive Markets
1. Will the monopolist firm continue to produce in the short run if a loss is incurred at the best short-run level of output?
i) If the price of a product is less than the minimum average cost, the firm will incur losses in the short run.
ii) If the price falls below the average variable cost, the monopolist firm will stop all production.
iii) If the price is between the average variable cost and the average cost, the firm will continue production
2. Explain why the demand curve facing a firm under monopolistic competition is negatively sloped.
A firm in monopolistic competition sells products that are differentiated from its competitor’s products. Therefore, the monopolistic firm will lower the cost to increase the demand.
Because differentiated products can be substituted for each other, the demand for commodities produced under monopolistic competition tends to be elastic. This elastic demand is the reason why the demand curve is negatively sloped for a firm under monopolistic competition.
3. What is the reason for the long-run equilibrium of a firm in monopolistic competition to be associated with zero profit?
A firm in monopolistic competition sells products that are differentiated from its competitor’s products. In other words, the products sold by a firm in monopolistic competition are unique and only have partial competition. Because of the free entry and exit of firms, the long-run equilibrium price will be the same and the firm will earn zero profit.
4. List the three different ways in which oligopoly firms may behave.
Oligopoly firms may behave in the following ways:
1. Firms realize that raging a price war will not sustain in the long run and therefore the main focus is on advertising the products and trying to differentiate their product from competitors so that it strikes a chord with the audiences.
2. Some firms may join hands to form cartels to maximize profit among themselves and capture a large part of market due to the combined effort.
3. Firms may decide on the quantity of output to be produced so that they can earn the maximum benefits, with a mutual agreement with other firms in limiting produce as per agreement.
NCERT Class 12 Economics Textbook Chapter 6 Non-Competitive Markets With Answer PDF Free Download