Chapter 5 

Q1. What is perfect competition and its features?

Ans:

Perfect Competition:

                                      A perfect competition is a market where there are large number of buyers and sellers selling homogenous product. This shows that the quantity produced by the seller in very small.

Features:

1. Large number of buyers:

                                                In perfect competition there are large number of buyer buying the similar product. So a single buyer cannot influence the price in the market as it is a small part of the market.

2. Large number of sellers:

                                                 In perfect competition there are large number of sellers that are selling homogenous product that means a single seller cannot influence the price in the market.

3. Homogenous product:

                                              The product sold by the sellers are homogenous that means the product is same in all kinds that is in size, colour, shape, taste etc. There is no distinction in product.

4. Free Entry and Free Exits:

                                                 There is no restriction on the entry in the market as well as no barriers for exits of the firm.

5. Single Price:

                          As there are large number of buyers no buyer can alone influence the price in the market so they are the price taker not maker. So there is single price on which the commodity are sold.

6. Perfect Knowledge:

                                        The consumer and seller both have perfect knowledge about market. Consumer did not have to pay extra as he have knowledge and seller does not charge heavy rates.

7. Perfectly Mobility of factors:

                                                        In perfect competition it is seen that all factors of production have freedom to move from one place to another place from one occupation to another.

8. No transport cost:

                                       In perfect competition it is seen that there is no transport cost or similar transport cost to all the sellers to keep the selling price same.

9. Non-government intervention:

                                                          It is seen that there is no government intervention in this market.

After analysis the above feature we can conclude that perfect competition does not exists in practical life it is an imaginary market.

Q2. What is price discrimination under price discrimination?

Ans:

Equilibrium Price:

                                 It is a price where a seller is ready to sell and the consumer is ready to buy the commodity. The price of product in perfect competition is influenced by both seller and the buyer. It is determined by the demand and the supply forces. It is a price where the consumer gets maximum satisfaction and the seller can recover his cost.

According to Marshall Demand and supply are like two blades of a single scissor as it is not possible to cut paper from one blade it is also not possible to determine price from only buyer or only from seller view.

The Equilibrium price can be studied from following diagram and schedule.

(Diagram In textbook)

Price	Quantity Demanded	Quantity Supplied
10	500	100
20	400	200
30	300	300
40	200	400
50	100	500

    

In the above diagram and schedule it can be clearly seen that as price rise demand falls and supply increases. When the price was 10 the demand was 500 and supply was 100 so demand more supply less leads to increase in price and similarly when prices rise to 50 the demand falls to 100 but supply raised to 500 which means demand less supply more leads to fall in prices.

When the price was 30 the demand is equal is supply that is 300 units which means this is the equilibrium price where buyer is ready to buy and seller is ready to sell.

Now draw the diagram and explain it.

Q3. What is Monopoly and its features?

Ans:

Monopoly:

                   Mono means single and poly means seller therefore Monopoly means single seller. In Monopoly he is the single seller in the market and have control over market supply. As he is the single seller he is the price maker and not price taker.

Features:

1. Single Seller:

                            As the name suggest Monopoly there is only one seller in the market. In the market he don’t need to face any competition and rivals.

2. Barriers to entry:

                                    As he is the single sellers there is barriers to entry. He has the complete market supply control and some provision are made to protect Monopoly powers.

3. No close substitute:

                                         There is no close substitute available to replace Monopoly product hence Monopoly does not face any competitions.

4. No distinction between firm and industry:

                                                                               As the Monopoly is the single sellers and manufacture so there is no distinction between firm and industry.

5. Price Maker:

                             As the monopolistic is a single seller in the market he is the price maker as he can charge any price to different consumers and he is not the price taker.

6. Control Market Supply:                                                                                                     

                                              As he is the single seller he has a control over whole market supply. As there are barriers to entry it does not allow competitors to enter in Monopoly.

7. Price Discrimination:

                                            As he is the single sellers he can charge different prices to different consumer i.e. he can charge high rates to rich people and low rates to the poor people.

8. Profit Maximization:

                                           The main aim of the Monopoly is to maximise the profit so he charge high rate to people. He earns abnormal profit then others.

Q4. Types of Monopoly

Ans: There are seven types of Monopoly:

1. Natural Monopoly:

                                      It is a Monopoly created due to availability of natural factors and weathers condition like good location, availability of resources etc. creates Monopoly. For e.g. tea of Assam.

2. Public Monopoly:

                                    It is also known as welfare Monopoly. It is Monopoly which is owned controlled and managed by government. It is a Monopoly which works for the welfare of the people. For e.g. Indians Railways.

3. Private Monopoly:

                                     It is a Monopoly which is owned and managed by private individual. The supply of goods and services are in the hands of private individuals. For e.g. Tata group etc.

4. Legal Monopoly:

                                 It is a Monopoly created by operation of law that mean it has a legal binding on the product like copyright, patent, trade mark etc. Some sellers take a trade mark and take permission from government that prohibits from getting it copied.

5. Simple Monopoly:

                                     It is a Monopoly which simply charges uniform prices to all the consumer there is no price discrimination.

6. Discriminating Monopoly:

                                                   It is also known as price discriminating Monopoly. In this sellers charges different prices to different consumers.

7. Voluntary Monopoly:

                                          It is not Monopoly but it is created by voluntary agreement between the firms. For e.g. OPEC (Oil Producing and Exporting Countries). This is also called as Joint Monopoly.

Q5. What is Monopolistic Competition and it’s Features?

Ans:

Monopolistic Competition:

                                                   It is a Monopoly which consists of large number of buyer and seller which sells product which are close substitute of each other but they compete on the basis of product not price. It was proposed by Prof. Chamberlin in his books “Theory of Monopolistic Competition” published in the 1993.

Features:

   1. Fairly large number of sellers:

                                                             In this Monopoly there are large number of sellers. Each sellers have limited quantity to be supplied. As there are large number of seller a single seller is the fractional part of whole market. So a single seller cannot bring a change in the supply. So they are the price taker not maker.

2. Fairly large number of buyer:

                                                          In these type of competition there are large number of buyer. Each buyer is a fractional part of whole market so he could not influence the price in the market.

3. Product Differentiation:

                                               In these competition the seller does not compete on the basis of price but on the basis on product. So there is the product differentiation in the market. The difference could be in the form of shape size colour etc. This competition is also known as Non price Competition.

4. Close Substitute:

                                    The product made are not perfect but close substitute of each other.

5. Selling cost:

                          As this is non price competition seller have to incur selling cost to make their product different from others. As in this competition the competition is on the basis of product not price so the sellers needs to make their product different from others.

6. Free Entry and Exits:

                                           There is no restriction on entry and exit of the firm in these market.

7. Demand Curve of Firm:

                                              As the product in the market are close substitute of each other there is very high price elasticity. As a small change could lead to huge change in the demand for that commodity.

8. Concept of Group:

                                        Chamberlin introduced this concept of group. In this similar producing industries are grouped together in the group concept.              

                       

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