NCERT Solutions for Class 12th Microeconomics Chapter 6 – Non Competitive Markets
National Council of Educational Research and Training (NCERT) Book Solutions for class 12th
Chapter: Chapter 6 – Non Competitive Markets
These Class 12th NCERT Solutions for Economics provide detailed, step-by-step solutions to all questions in an Economics NCERT textbook.
Class 12th Economics Chapter 6 – Non Competitive Markets NCERT Solution is given below.
Question 1. What would be shape of demand curve, so that the total revenue curve is
(i) Apositively sloped straight line passing through the origin.
(ii) Ahorizontal line.
(i) Demand curve or AR curve will be a horizontal straight parallel to the X-axis because positively sloped straight line TR curve passing, through
the origin indicates that price remains constant at all level of output.
(ii) Demand curve will slope downwards from left to right because horizontal TR indicates that TR remains same at levels of output. It is possible only when price falls with rise in output
Question 2. From the schedule provided below calculate the total revenue, demand curve and the price elasticity of demand.
|Q||MR||TR||Demand curve(TR/Q)||Price elasticity of demand|
Question 3. What is the value of the MR when the demand curve is elastic?
Answer When the demand curve is elastic, then MR will be positive. It means e > 1 and
Question 4. A monopoly firm has a total fixed cost of Rs 100 and has the following demand schedule
Find the short run equilibrium quantity, price and total profit. What would be the equilibrium in the long run? In case the TotaI cost was Rs 1000, describe the equilibrium in the short run and in the long run.
The total cost of the monopolist firm is zero. the profit will be maximum where TR is maximum. As, in the above case, TR is maximum at the 6th unit
Profit of the firm = 300
Short run equilibrium price =Rs 50
Profit = TR – TC
= 300- 0 =300
As per the case if the total cost is Rs 1000 then
= 300- 1000 = – 700
The firm is earning loss in the short run and It hill stop its production in the long run.
Question 5. If the monopolist firm of exercise 3, was a public sector firm. The government set 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 decide to set the price so that demand and supply in the market are equal. What would be the equilibrium price, quantity and profit in that case?
Equilibrium price =P1
Equilibrium quantity = Q1
Profit = Normal profit
In a perfectly competitive market a firm earns zero profit. It implies that a competitive firm can get only normal profit
Question 6. Comment on the shape of MR curve in case the TR curve is a
(i) Positively sloped straight line.
(ii) Horizontal straight line.
(i) When TR curve IS positively sloped straight line, MR curve will be a horizontal like parallel to the X-axis It snows AR and MR is constant
at each level of output.
(ii) When TR curve is a horizontal line, then MR will be zero because horizontal TR indicates that It remains constant at levels of output.
Question 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
(i) The MR and Me schedules
(ii) The quantities for which the MR and Me are equal.
(iii) The equilibrium quantity of output and the equilibrium price of the commodity.
(iv) The total revenue, total cost and total profit in equilibrium.
(ii) MR= Me at 6th unit of output
(iii) Equilibrium quantity = 6 Units Equilibrium price = Rs 19
(iv) At equilibrium
Total revenue= 114
Total cost= 109
Total Profit = 114 -109 = Rs5
Profit= Rs 5
Question 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?
Answer In the the short run of a firm incurs loss the continuation to produce determined given below
(i) If a this level of output MC curve cuts the MR curve from above or Me curve is negatively sloped then the firm will continue to produce in the
short run if a loss is incurred Beyond this level of output firm may earn profit as Me is sloping downward.
(ii) If at this level of output MC curve cuts the MR curve from below or Me curve is rising then the firm will not continue to produce in the short
run it a loss is incurred
Question 9. Explain why the demand curve facing a firm under monopolistic competition is negatively sloped.
Answer Demand of the product is not in the central 01 monopoly firm because it has no close substitutes. In order to increase the output to be
sold. monopolist will have to reduce the price. Therefore. monopoly firm faces a downward sloping demand curve.
In figure. at price OP,firm can sell OQ quantity. Demand rises to OQ1 the price is reduced to OP So. demand curve under monopoly is negatively sloped as more quantity can be sold only at a lower price
Question 10. What is the reason for the long run equilibrium of a firm in monopolistic competition to be associated with zero profit?
Answer In monopolistic competition the number of firms is large. There is free entry and exit of firms. The goods produced are differenciated. tn the
short run a firm may earn abnormal profit which attracts the new firms. It will expand the output of the commodity. It will cause fall in the market price of the commodity. Thus phenomenon of entry of firms, expansion of output and falling of price will continue till profit become zero. At this level of profit there will be no attraction for new firms to enter in the market. Contrary to it if firms are facing losses in the short run. Some firms would
stop producing the commodity. It results in contraction of output that will dead to a higher price. The exit would half once profits become zero.
Thus, entry or exit of firms in long run half once profits become zero and this would serve as the long run equilibrium.
Question 11. List the three different ways in which oligopoly firms may behave.
Answer Following are the three different ways in which oligopoly firm may behave.
(i) Duopoly firms may callude together and decide not to compete with each other and maximise total profits.
(ii) Each of the two firms decide how much quantity to produce and would not change the quantity that is supplying
(iii) In oligopoly the market price does not move freely in response to changes in demand.
Question 12. If duopoly behavior 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, firms the quantity supplied by each firm in equilibrium and the equilibrium market price.
Answer Market demand curve
When the demand curve is a straight line and total cost is zero
At P =Rs 0, market demand is
Q = 200 – 4 (0)= 200 units
If firm B does not produce anything, then the market demand faced
by firm A is 200 units.
The supply of firm A =1/2 x 200 = 100 units
In the next round. the portion of market demand faced by firm B is
200 – 200/2 = 200 -100 =100 units
Firm B would supply 1/2 x ( 200 – 200/2) =50 units
Thus, firm B has changed its supply from zero to 50 units. To this firm A would react accordingly and the demand faced by firm A will be
200 – 1/2 x (200 – 200/2) = 200 – 50 = 150 units
Firm A would supply = 150/2 = 75 units
The quantity supplied by firm A and firm B is represented in the table below.
Question 13. What is meant by prices being rigid? How can oligopoly behavior lead to such an outcome?
Answer Price rigidity means price under oligopoly lends to be fixed or constant despite the changes in demand and cost in the industry. The oligopoly firms react after change in price initiated by any firm, The firm believes that its rivals will react after the analysis of what the changes made
by oligopoly firm, The firm believes that if It raises the price the rivals will not follow it but if the firms cuts down the price the rival firms will also do the same Thus. in oligopoly firm prefers to stick at the existing price.