NCERT Solutions for Class 12 Economics I Chapter 4 The Theory Of The Firm Under Perfect Competition – Here are all the NCERT solutions for Class 12 Economics I Chapter 4. This solution contains questions, answers, images, explanations of the complete chapter 4 titled The Theory Of The Firm Under Perfect Competition taught in Class 12. If you are a student of Class 12 who is using NCERT Textbook to study Economics I, then you must come across chapter 4 The Theory Of The Firm Under Perfect Competition. After you have studied lesson, you must be looking for answers of its questions. Here you can get complete NCERT Solutions for Class 12 Economics I Chapter 4 The Theory Of The Firm Under Perfect Competition.
NCERT Solutions Class 12 Economics Chapter 4 The Theory Of The Firm Under Perfect Competition
Here on AglaSem Schools, you can access to NCERT Book Solutions in free pdf for Economics for Class 12 so that you can refer them as and when required. The NCERT Solutions to the questions after every unit of NCERT textbooks aimed at helping students solving difficult questions.
For a better understanding of this chapter, you should also see summary of Chapter 4 The Theory Of The Firm Under Perfect Competition , Economics, Class 12.
Class | 12 |
Subject | Economics |
Book | Introductory Microeconomics |
Chapter Number | 4 |
Chapter Name |
The Theory Of The Firm Under Perfect Competition |
NCERT Solutions Class 12 Economics chapter 4 The Theory Of The Firm Under Perfect Competition
Class 12, Economics chapter 4, The Theory Of The Firm Under Perfect Competition solutions are given below in PDF format. You can view them online or download PDF file for future use.
The Theory Of The Firm Under Perfect Competition
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Question & Answer
Q.1: What are the characteristics of a perfectly competitive market?
Ans : Perfect Competition This type of market structure refers to the market that consists of a large number of buyers and also a large number of sellers. No individual seller is able to influence the price of an existing product in the market. All sellers in a perfect competition produce homogenous outputs, i.e. the outputs of all the sellers are similar to each other and the products are uniformly priced. Features of Perfectly Competitive Market 1) A large number of buyers and sellers There exist a large number of buyers and sellers in a perfectly competitive market. The number of sellers is so large that no individual firm owns the control over the market price of a commodity. Due to the large number of sellers in the market, there exists a perfect and free competition. A firm acts as a price taker while the price is determined by the ‘invisible hands of market’, i.e. by ‘demand for’ and ‘supply of’ goods. Thus, we can conclude that under perfectly competitive market, an individual firm is a price taker and not a price maker. 2) Homogenous products All the firms in a perfectly competitive market produce homogeneous products. This implies that the output of each firm is perfect substitute to others’ output in terms of quantity, quality, colour, size, features, etc. This indicates that the buyers are indifferent to the output of different firms. Due to the homogenous nature of products, existence of uniform price is guaranteed. 3) Free exit and entry of firms In the long run there is free entry and exit of firms. However, in the short run some fixed factors obstruct the free entry and exit of firms. This ensures that all the firms in the long-run earn normal profit or zero economic profit that measures the opportunity cost of the firms either to continue production or to shut down. If there are abnormal profits, new firms will enter the market and if there are abnormal losses, a few existing firms will exit the market. 4) Perfect knowledge among buyers and sellers Both buyers and sellers are fully aware of the market conditions, such as price of a product at different places. The sellers are also aware of the prices at which the buyers are willing to buy the product. The implication of this feature is that if any individual firm is charging higher (or lower) price for a homogeneous product, the buyers will shift their purchase to other firms (or shift their purchase from the firm to other firms selling at lower price). 5) No transport costs This feature means that all the firms have equal access to the market. The goods are produced and sold locally. Therefore, there is no cost of transporting the product from one part of the market to other. 6) Perfect mobility of factors of production There exists geographically and occupationally perfect mobility of factors of production. This implies that the factors of production can move from one place to other and can move from one job to another. 7) No promotional and selling costs There are no advertisements and promotional costs incurred by the firms. The selling costs under perfectly competitive market are zero.
Q.2: How are the total revenue of a firm, market price, and the quantity sold by the
firm related to each other?
Ans : Total revenue is defined as the total sales proceeds of a producer by selling corresponding level of output. In other words, it is defined as price times the quantity of output sold. Total Revenue = Price × Quantity of output sold TR = P × Q TR = PQ In a perfectly competitive market, the market price is given, i.e., a firm acts as a price taker and cannot influence the price. Hence, a particular firm can influence its TR by altering the quantity of output sold.
Q.3: What is the ‘price line’?
Ans : Price line is the graphical representation of the relationship between output and price, with x-axis denoting the output and y-axis denoting the price. For a perfectly competitive firm, price line and demand curve are the same.
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Q.4: Why is the total revenue curve of a price-taking firm an upward-sloping straight
line? Why does the curve pass through the origin?
Ans : The total revenue curve for a firm in a perfectly competitive market is an upward sloping curve because the price or AR remains constant and MR is also equal to AR. Thus, TR can only be influenced by altering the output sold, as the price remains constant. The increase in TR is in the same proportion as the increase in the output sold. The curve passes through the origin, which implies that no matter what the price level is, if the output sold is zero, TR will also be zero.
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Q.5: What is the relation between market price and average revenue of a pricetaking firm?
Ans : Average Revenue is defined as the revenue per unit of the output sold. It is expressed as the ratio between total revenue and the output sold. AR \(=\frac{T R}{Q}\) We know that TR = P × Q \(A R=\frac{P \times Q}{Q}\) AR = P Thus, the market price and the average revenue are the same for a perfect competitive firm.
NCERT / CBSE Book for Class 12 Economics
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- Click here for NCERT Book for Class 12 Economics
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