# NCERT Solutions for Class 12 Economics Chapter 6: Non-Competitive Markets

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The NCERT Solutions for Class 12 Economics cover all the questions pertaining to the subject in a very clear and lucid manner. Apart from being highly accurate, these solutions are also very easy to memorize. These solutions are written as per the latest CBSE syllabus and are helpful in clearing doubts. On this solution page, we have provided you with complete overview of the concepts and methods covered in the Chapter 6 of Micro Economics – Non-Competitive Markets.

## NCERT Solutions for Class 12 Economics Chapter 6

### Non-Competitive Markets

#### Q1) What would be the shape of the demand curve so that the total revenue curve is

(a) a positively sloped straight line passing through the origin?
(b) a horizontal line?

Answer a) The slope of the demand curve will be a horizontal line parallel to x-axis when revenue curve is positively sloped straight line.

Answer b) Demand curve will be downward sloping when revenue curve is a horizontal line.

#### Q3) What is the value of the MR when the demand curve is elastic?

Answer) When the demand curve is elastic, then according to the relationship the fraction will be less than 1. Hence, MR will be positive when it is positive. AR or demand curve will never be 0 as TR is always positive.

The above formulation may be very beneficial when the demand characteristic has recognised consistent charge elasticity. commercial enterprise managers must estimate the cost of MR so that you can arrive at decisions approximately charge and output.

#### Q4) A monopoly firm has a total fixed cost of Rs 100 and has the following demand schedule:

We know Total Cost (TC) = TFC + TVC
Let the total variable cost of the firm be 0
Profit will be maximum where TR (Total Revenue) is maximum and as per the table it is 6th unit of output that is providing maximum profit.
Therefore Short run equilibrium price is 50.
Now let’s calculate profit
Profit = TR-TC
= 300-100
=200

In short run, the level at which total revenue is maximum is used to determine equilibrium quantity, therefore 300 will be the equilibrium quantity.

Now, calculating profit in the long run
Profit= Total Revenue – Total Cost or TR – TC
= 300-1000
= -700

As per the numbers the firm is suffering losses in the long run.

#### Q5)

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 this case?

Answer) If the government units a rule for the public region firm to simply accept the constant price, then, the monopoly company will need to behave like a wonderfully aggressive firm and might be a price taker. In this case, the price fixed Pe, as set by the government, will equate the call for and the deliver, as a way to decide the equilibrium factor ‘E’.

At the rate Pe, the firm earns normal profit, i.e. zero economic profit.

#### Q6) Comment on the shape of the MR curve in case the TR curve is a

1. positively sloped straight line
2. horizontal straight line

Answer 1) Based on the connection among MR and TR, it could be stated that after the TR curve is a definitely sloped straight line, then the MR curve is a horizontal immediate line parallel to the X axis. MR and call for curve are the identical, and the rate (AR) remains constant for distinctive output levels. This happens under best opposition. MR is regular therefore, TR will increase at a growing fee. This is why TR is definitely sloped in an instantaneous line.

Answer 2) The MR will be zero when the TR curve is a horizontal straight line. Horizontal slope of TR curve is representing the fact that MR (marginal revenue) is zero. It can be represented graphically as:

#### Q7) The market demand curve for a commodity and the total cost for a monopoly firm producing the commodity are given in the schedules below.

Use the information given to calculate the following:

(a) The MR and MC schedules
(b) The quantities for which MR and MC are equal
(c) The equilibrium quantity of output and the equilibrium price of the commodity
(d) The total revenue, total cost and total profit in the equilibrium

Answer b) MR and MC become equal at the 6th unit of output.

Answer c) At equilibrium, MR equals MC, and right here MR equals MC on the sixth unit of output, wherein MC is upward sloping. Hence, the equilibrium price is Rs 19.

Answer d) As 6th unit of output is where equilibrium is attained therefore TR= 114, TC= 109 and Profit = 114-109 = Rs 5.

#### Q8) Will the monopolist firm continue to produce in the short run if a loss is incurred at the best short run level of output?

• If the price of a product is less than the minimum average cost, the firm will incur losses in the short run.
• If the price falls below the average variable cost, the monopolist firm will stop all production.
• If the price is between the average variable cost and the average cost, the firm will continue production

#### Q9) Explain why the demand curve facing a firm under monopolistic competition is negatively sloped.

Answer) A monopolistic firm has differentiated products; thus, it has to decrease its fee in order to grow its income. the goods of various monopolistic firms are near substitutes to another. Each dealer has a few diplomas of monopoly power of “‘Making’ the price. in view that there are numerous near substitutes available, the result is downward / negative sloping and elastic call for curve. Which means as the fee decreases, the quantity demanded for those precise increases. Partial control over price enables a firm to pursue its own price policy. But while it fixes the price, it cannot fix demand for its product. More can be sold only at a lower price. Implying a negatively sloped demand curve.

#### Q10) What is the reason for the long run equilibrium of a firm in monopolistic competition to be associated with zero profit?

Answer) A firm in monopolistic competition sells products that are differentiated from its competitor’s product. 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.

#### Q11) List the three different ways in which oligopoly firms may behave.

Answer) Oligopoly in a community market happens when there are small numbers of companies producing a homogeneous commodity. Oligopoly companies can also behave inside the following 3 ways:

• Cartel – so as to keep away from undue opposition, oligopolistic corporations might also engage in formal agreements or contracts. this could now not permit them to maximise their total profits together, but additionally seize a sizable market portion.
• Limitations to the entry and exit of new corporations – it may occur that present corporations attempt to adopt competitive fees which restricts the access of recent corporations into the oligopoly market. each producer believes in income maximization coverage as opposed to income maximization whilst figuring out charges.
• Limitations to the entry and exit of new corporations – it may occur that present corporations attempt to adopt competitive fees which restricts the access of recent corporations into the oligopoly market. each producer believes in income maximization coverage as opposed to income maximization whilst figuring out charges.

#### Q12)

If duopoly behaviour 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, find the quantity supplied by each firm in equilibrium and the equilibrium market price.

Q = 200 – 4p

When the call for curve is an immediate line and general price is 0, the duopolistic unearths it most worthwhile to deliver half of the maximum demand of an excellent.

At P =Rs zero, marketplace call for is Q = two hundred – 4 (0) = 200 units

If firm B does not produce anything, then the market demand confronted by means of company A is 2 hundred devices. consequently, The supply of firm A = ½ * 200 = a hundred gadgets within the next spherical, the portion of market call for faced via company B is 200 -200/2 = two hundred – one hundred = one hundred devices.

Consequently, firm B might supply ½ (two hundred – two hundred/2) = 50 units

accordingly, company B has modified its supply from 0 to 50 gadgets. To this company A might react thus and the demand faced through firm A can be 2 hundred -1/2*(two hundred-200/2) = two hundred – 50 = one hundred fifty devices consequently, firm A might supply = 150/2 = seventy five gadgets

The amount furnished through firm A and firm B is represented within the table under.

Therefore, the equilibrium output supplied by firm A = 200/2 – 200/4 + 200/8 -200/16+200/32+ 200/64 + 200/128 + 200/256+… = 200/3 units

Similarly, the equilibrium output supplied by firm B = 200/3 units.

Market Supply = Supply by firm A+ Supply by firm B = 200/3 + 200/3

Equilibrium output or Market Supply = Q = 400/3 units…………… (1)

For equilibrium price
Q = 200 – 4p
= 200 – Q
P = 50 – Q/4
P = 50 – ¼ (400/3) (from (1))
P = 50 – 100/3
P = 50-100/3
P = Rs. 50/3

Therefore, the equilibrium output (total) is 400/3 units and equilibrium cost is Rs. 50/3.

#### Q13) What is meant by prices being rigid? How can oligopoly behavior lead to such an outcome?

Answer) Price rigidity refers to the situation in which price does not change with respect to demand. It may happen that a firm changes its price by more units to earn high profits, similar firms in the same industry will not do the same due to the fear of losing out profit. While a firm if it reduces the price to increase sales and profits. The other firm will soon follow the steps to share total market sales. Therefore oligopoly will lead to price rigidity in the market.

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