Chap 4

Microeconomics ….
Market & Price determination under different market
Market and Price determination under

4
different market
1. Market means buyer and seller comes into contact and exchange goods and service against money.
2. Very short period market – market in which the commodities are perishable and supply of commodities
cannot be changed at all
3. Short period market this is slightly longer than the very short period market. In this market, the supply of
the output can be increased by increasing the variable factor to the given fixed capital requirements
4. Long-period market – in this market, time available is adequate for altering the supplies by altering even
the fixed factor of production
5. Very long-period market or secular period – when secular movement are recorded.
6. Spot market – goods are physically bought and sold on the spot
7. Future market- transactions which involve contracts of the future date
8. Regulated market –transaction are statutorily regulated
9. Unregulated market- free market with no restriction on transaction.
Market based on competition :
10. Perfect competition
11. Pure competition
12. Monopoly competition
13. Monopolistic competition
14. Oligopoly competition.

Perfect competition- large no. of buyers, large no. of seller, selling homogeneous goods, single price,
perfect knowledge, no transportation cost, normal profit.
Price is determined by industry.(demand and supply)
Monopoly competition- mono means single, poly means seller. Single seller and large no. of seller, no
close substitute, super profit, inelastic demand, downward demand curve, price discrimination, price maker.
Monopolistic competition- large no. of buyers and large no. of seller, close substitute, normal profit,
control over price, elastic demand curve, concept of group .
Oligopoly market- few seller (2 to 10) and large no. of buyers , price rigidity, kinked demand curve.
Unique Academy 4.1 CS Shubham Abad

Microeconomics …. Market & Price determination under different market
15. Concept of TR, AR, MR.
16. TR means price * quantity
17. TR is maximum
18. Upward slope
19. AR- TR /q
20. MR- change in total revenue/change in quantity
21. Relationship among MR , AR and elasticity MR = AR x [( e-i-)/e]

 Therefore, when elasticity is zero or infinity , MR is not defined
 When elasticity is one, then MR is zero and therefore TR is at maximum
 When elasticity is less than one , MR is negative and therefore TR is declining
 When elasticity is more than one, MR is positive and thus TR is increasing
22. In the short run any firm must recover at least it’s average variable cost I.e. minimum price charged should
be at least equal to AVC I.e. P(min) = VAC
23. P= AVC is also known as short run shut down point , Below this level of price no firm would like to
produce and would shut down the operation.
24. If MR>MC, then firm will get additional revenue by selling one extra unit of output more than what
additional cost it will incur by producing that but and THERFORE , the firm will EXPAND the output.
25. If MR<MC, the firm will get additional revenue by selling one extra unit of output Less than what
additional cost it will incur by producing that but and THEREFORE, the firm will CONTRACT the output
26. If MR=MC, the firm may be said to be in equilibrium as there is no incentive to the firm in expanding the
output or contracting it.
Equilibrium point (where to stop production):

MC = MR
MC cuts MR from below
Profit determination in SHORT RUN:

For profit will compare AR with AC.
AR is more than AC=super profit.
AR is less than AC but more than AVC=LOSS
AR is equal to AC=normal profit .
AR is less than AVC=shut down point.

27. Under perfect competitive market – (a) large number of buyer and seller (b) product are homogeneous or
identical (c) perfect knowledge of the market environment (d)
almost no transportation cost (e) sellers and buyers are not aware of each other (f) equilibrium price is set up
by the industry (g) perfect competitive industry is price decider/ giver and a price competitive firm is price
taker (h) no individual firm can influences the equilibrium price and will be selling any quantity at the given
equilibrium price only (i) a perfect competitive firm can change its output only to reach its equilibrium
(j)short run equilibrium or long run equilibrium profit/ loss depend purely on the individual firm cost curve
28. No. Transportation cost is not the essential feature of perfect competitive industry
29. Demand curves and supply curve of the perfect competitive industry downward and upward sloping
30. A perfect competitive firm is price taker and sells any amount of output at given price
31. Demand curves of a perfect competitive firm is a STRAIGHT LINE HORIZONTAL TO X-AXIS ( quantity
axis )
32. Price Elasticity of perfect competitive firm is perfectly elastic
33. For a perfect competitive firm, P = AR = MR =demand
34. For a perfect competitive firm, demand curve is also price line, AR curve of MR curve
35. Supply curve of a perfect competitive firm is depicted by THAT PORTION OF MC WHICH IS ABOVE
MINIMUM OF AVC (I.e. above shut down point)
36. Short run equilibrium of the perfect competitive industry- where demand and supply curve cut each other
37. Short run / long run equilibrium condition of the perfect competitive firm-(1) MR = MC ( necessary
condition, 1st order condition ) (2) MC curve should cut MR curve from below ( 2 nd order condition,
sufficient condition)
38. Status of a perfect competitive firm in the short and long run while in the equilibrium
Income Condition short run long run
Supernormal profit AR>AC yes No
Normal profit AR= AC yes yes
Loss AR<AC yes No
39. A perfect competitive firm, IN THE LONG RUN, operates at minimum point of average cost curve
(optimum point)
40. Long run equilibrium of the industry is said then = (a) all the firms are earning just normal profit (b) all the
firms are in equilibrium (c) consumer pay the minimum possible price which just covers the MC I.e
AR=P=MC (c) plants are used at capital (d) No wastage of resources (e) LAR= LMR = P= LMC=
LAC=SMC=SAC
41. A monopoly industry is characterized by (a) single seller (b) Restriction to entry (c) No close substitutes

42. AR and MR for monopoly form, both are negatively sloped
43. For a monopoly, MR curve lies half between the AR curve and Y-axis I.e. it cuts the horizontal line
between Y-axis and AR into two equal parts
44. There is absence of supply curve for a monopoly firm for a monopoly firm, AR CANNOT be zero BUT
MR can be zero or negative
45. Equilibrium condition for a monopoly firm = (a) MR= MC (b) MC curve should cut MR curve from below
46. In the long run, a monopoly firm NEED NOT operate at the minimum point of LAC like perfect
competitive firm. It can operate any point on the LAC where it’s profit is maximum
47. Status of a monopoly firm In the short and long run while in the equilibrium
Supernormal profit AR>AC yes yes
Loss AR<AC yes No
48. Price discrimination, for a monopoly firm is said to exist when the monopoly firm charges different price
for same goods or services to different customers
49. Condition for price discrimination- (a) At least some control over the supply of product (b) the firm should
be able to divide the market in different sub-market (c) the price elasticity of demand in the different sub-
market should be different (d) there should not be inter-market selling buying .
50. Monopolist charges higher price where price elasticity is low and lower prices where price elasticity is
high
51. 1st degree price discrimination- when different price is charged for different unit of good . There is no
consumer surplus left in 1stdegree
52. 2nd degree price discrimination- when the monopolist charges different price for different lot size
53. 3rd degree price discrimination- when the monopolist charges different price in different market
54. Feature of a monopolistic market- (a) large number of buyer (b) Differentiated product (c) free entry and
exit (d) Non-price competition
55. Both AR and MR curve for a monopolist firm are downward sloping
56. Demand curves of a monopolistic firm is more elastic than that of monopoly firm
57. Condition for the equilibrium of a monopolist firm (a) MR = MC curve should cut MR curve from below

58. Status of a monopolistic competitive firm in the short and long run while in the equilibrium
Supernormal profit AR>AC yes No
Loss AR<AC yes No
59. In the long run, for a monopolistic firm, there is excess capacity I.e . plant does not operate at full
capacity level like a perfect competitive firm.
60. Features of an oligopoly industry (a) Interdependence (b) significant advertising and selling cost (c) Group
behaviour
61. There is no define demand curve for an oligopoly firm
62. Kinked demand curve was explained by “ Sweezy"
63. Kinked demand curve is of the demand curve feature seen for a oligopoly
64. The kinked demand curve is kinked at the prevailing price
65. Price rigidity is found where the demand curve is kinked
66. Segment of the demand curve above the prevailing price level is more elastic and the segment of the
demand curve below the prevailing price is less elastic
67. Kinked demand curve is based on the assumption that if a firm lower the price of its product it’s competitors
will follow him and will according lower prices, where if the raises the price above the prevailing level, it’s
competitors will not follow increases in price
68. Types of oligopoly

(a) Pure or perfect oligopoly (b) Imperfect oligopoly (c) open oligopoly
(d) closed oligopoly (e) collusive oligopoly (f) Competitive oligopoly
(g) partial oligopoly (h) full oligopoly (i) syndicated oligopoly
(j) organized oligopoly

OBJECTIVE QUESTION
Q.1- Which of the following is not an essential condition of pure competition?

(a) Large number of buyers and sellers
(b) Homogeneous product
(c) Freedom of entry
(d) Absence of transport cost
Q.2- Under which of the following forms of market structure does a firm has no control over the price of its
product.
(a) Monopoly
(b) Oligopoly
(c) Monopolistic competition
(d) Perfect competition

 1
Q.3- Given the relation MR=P 1   if e> 1, then
 e
(a) MR >0
(b) MR <0
(c) MR = 0
(d) None
Q.4- Profits of the firm will be more at:

(a) MR = MC
(b) Additional revenue from extra unit equals its additional cost
(c) Both of above
(d) None
Q.5- What should firm do when Marginal revenue is gender than marginal cost?
(a) Firm should expand output
(b) Effect should be made to make them equal
(c) Prices should be covered down
(d) All of these
Q.6- Under monopoly price discrimination depends upon:

(a) Elasticity of demand for commodity
(b) Elasticity of supply for commodity
(c) Size of market
(d) All of above
Q.7- Firms in a monopolistic market are price _________:

(a) Takers
(b) Givers
(c) Makers
(d) Acceptors
Q.8- Market which have two firms are known as:

(a) Oligopoly
(b) Duopoly
(c) Monopsony
(d) Oligopsony
Q.9- Monopolist can determine:

(a) Price
(b) Output
(c) Either price or output
(d) None
Q.10- MR of n th unit is given by:

(a) TR n / TR n 1
(b) TR n + TR n 1
(c) TR n - TR n 1
(d) All of these
Q.11- The market structure in which the number of sellers is small and there is inter dependence in decision
making by the firms is known as:
(a) Perfect competition
(b) Oligopoly
(c) Monopoly

(d) Monopolistic competition
Q.12- In perfect competition firm is a price taker, the _______ curve is a straight line:
(a) Marginal cost
(b) Total cost
(c) Total revenue
(d) Marginal revenue
Q13- Given the relation MR=P (1- 1 e ). If e<1, then

(a) MR < 0
(b) MR >0
(c) MR = 0
(d) None of these
Q.14- For maximum profit, the condition is:

(a) AR = AC
(b) MR = MC
(c) MR = AR
(d) MC = AC
Q.15- Equilibrium price may be determined through:

(a) Only demand
(b) Only supply
(c) Both demand & supply
(d) None
Q.16- If price is forced to stay below equilibrium price:

(a) Excess supply exists
(b) Excess demand exists
(c) Either (a) or (b)
(d) Neither (a) nor (b)
Q.17- An increase in supply with unchanged lead to :

(a) Rise in price and fall in quantity
(b) Fall in both price and quantity
(c) Rise in borh price and quantity
(d) Fall in price and rise in quantity
Q.18- In the long run:

(a) Only demand can change
(b) Only supply can change
(c) Both demand and supply can change
(d) None of these
Q.19- Condition for producer equilibrium is:

(a) TR = TC
(b) MC = MR
(c) TC = TSC
(d) None of these
Q.20- An increase in supply with demand remaining the same, brings about.
(a) An increase in equilibrium quantity and decrease in equilibrium price
(b) An increase in equilibrium price and decrease in equilibrium quantity
(c) Decrease in both equilibrium price and quantity
(d) None of these

Q-21.- A competitive firm in the short run incure losses. The firm continues production, if:
(a) P > AVC
(b) P = AVC
(c) P< AVC
(d) P >= AVC
Q.22- Under ____ market condition, firm make normal profits in the long run:
(b) Monopoly
(c) Oligopoly
(d) None
Q.23- A monopolist is able to maximize his profits when:

(a) His output is maximum
(b) He charges a high price
(c) His average cost is minimum
(d) His marginal cost is equal to marginal revenue
Q.24- Under monopolistic competition the cross elasticity of demand for the product of a single firm would be:
(a) Infinite
(b) Highly elastic
(c) Highly inelastic
(d) Zero
Q.25- When AR= Rs.10 and AC= Rs.8 the firm makes ___________:
(a) Normal profit
(b) Net profit
(c) Gross profit
(d) Supernormal profit
Q.26- What are the conditions for the long run equilibrium of the competitive firm?
(a) LMC = LAC = P
(b) SMC = SAC = LMC
(c) P = MR
(d) All of these
Q.27- Kinked demand curve hypothesis is given by:

(a) Alfred marshal
(b) A.C Pigou
(c) Sweezy
(d) Hicks & allen
Q.28- Supernormal profits occur, when :

(a) Total revenue is equal to total cost
(b) Total revenue is equal to variable cost
(c) Average revenue is more than average cost
(d) Average revenue is equal to average cost
Q.29- If the perfect competition, the price line lies below the average cost curve, the firm would:
(a) Make only Normal profits
(b) Incur losses
(c) Make abnormal profit
(d) Profit cannot be determined
Q.30- The MR curve cuts the horizontal line between Y axis and demand curve into :
(a) Two unequal parts
(b) Two equal parts

(c) May be equal or unequal parts

(d) None of these
Q.31- Competitive firm in the long run earn:

(a) Super normal profit
(b) Normal profit
(c) Losses
(d) None
Q.32- For a monopolist, the necessary condition for equilibrium is:

(a) P = MC
(b) P = MR = AR
(c) MR = MC
(d) None
Q.33- A firm will shut down in the short run if:

(a) If is suffering a loss
(b) Fixed costs exceeds revenue
(c) Variable costs exceed variable
(d) Total costs exceed revenue
Q.34- ________ is the price at which demand for a commodity is equal to its supply:
(a) Normal price
(b) Equilibrium price
(c) Short run price
(d) Secular price
Q.35- ______ is a ideal Market.

(a) Monopoly
(b) Monopolistic
(c) Perfect competition
(d) Oligopoly
Q.36- Under which Market situation demand curve is linear and parallel to X axis:
(a) Perfect Competition
(b) Monopoly
(c) Monopolistic Competition
(d) Oligopoly
Q.37- Which market have characteristic of product differentiation?

(b) Monopoly
(c) Monopolistic Competition
(d) Oligopoly
Q.38- Which of these are characteristic of perfect Competition.

(a) Many Sellers & Buyers
(b) Homogeneous Product
(c) Free Entry and Exit
(d) All of the above
Q.39- MR Curve = AR = Demand Curve is a feature of which kind of Market?

(b) Monopoly
(c) Monopolistic
(d) Oligopoly

Q.40- In the long-run monopolist can

(a) Incur losses
(b) Must earn super normal profits
(c) Wants to shut- down
(d) Earns only normal profits.
Q.41- The demand curve of the firm and industry will be same in which form of market:
(a) Monopoly Competition
(b) Perfect Competition
(c) Monopoly
(d) Oligopoly
Q.42- Oligopoly haring identical products is:

(a) Pure oligopoly
(b) Imperfect oligopoly
(c) Price leadership
(d) Collusion
Q.43- The demand curve of oligopoly is:

(a) Horizontal
(b) Vertical
(c) Kinked
(d) Rising left to right
Q.44- Demand curve is equal to M.R curve in which market?

(a) Oligopoly
(b) Monopoly
(c) Monopoly Competition
(d) Perfect Competition
Q.45- Kinked demand hypothesis is designed to explain ________ in context to oligoploly.

(a) Price and Output Determination
(b) Price Rigidity
(c) Collusion between Firm
(d) All of the above
Q.46- Price discrimination can take place only in _______.

(a) Monopolistic Competition
(b) Oligopoly
(c) Perfect competition
(d) Monopoly
Q.47- In oligopoly, the kind on the demand curve is more due to _________
(a) Discontinuity in MR.
(b) Discontinuity in AR.
(c) Fulfillment of the assumption that a price cut is followed by others and a price increase by a firm is
not followed by others.
(d) Price war amongst the firms.
Q.48- Price Discrimination is possible only when.

(a) Seller is alone
(b) Goods are homogeneous
(c) Market is controlled by the government
(d) None of the above
Q.49- Which of the following is not the feature of an imperfect competition?

(a) Product differentiation

(b) Few sellers

(c) Homogeneous products
(d) Price wars
Q.50- Price taker firma _____________

(a) Do not advertise their product because it misleads the customers
(b) Advertise their products to boost the level of demand
(c) Do not advertisement but given gifts along with the sold items to attract customers
(d) Do not advertise because they can sell as much as they wish at the prevailing price.
Q.51- Price rigidity is a situation found in which of the following market forms?
(b) Monopoly
(d) Oligopoly
Q.52- When elasticity of demand is Equal to one in monopoly, marginal Revenue will be ________.
(a) Equal to one
(b) Greater than one
(c) Les than one
(d) Zero.
Q.53- Which one of the following statement is incorrect?

(a) Competitive firms are price takers and not price makers
(b) Price discrimination is possible in monopoly only
(c) Duopoly may lead to monopoly
(d) Competitive firm always seeks to discrimination
Q.54- Under which of the following market structure AR of the firm will be equal to MR?
(a) Monopoly
(b) Monopolistic competition
(c) Oligopoly
Q.55- Tooth paste industry is an example of __________.

(a) Monopoly
(b) Monopolistic competition
(c) Oligopoly
Q.56- OPEC is an example of :

(a) Monopolistic competition
(b) Monopoly
(c) Oligopoly
(d) Duopoly
Q.57- Monopolistic Competitive firms ________.

(a) Are small in size
(b) Have small share in total market
(c) Are very large in size
(d) Both (A) and (B)
Q.58- The price discrimination under monopoly will be possible under which of the following conditions?
(a) The seller has no control over the supply of his product
(b) The market has the same condition all over
(c) The price elasticity of demand is different in different markets
(d) The price elasticity of demand is uniform.

Q.59- Oligopoly having identical products is known as __________.

(a) Pure oligopoly
(b) Collusive oligopoly
(c) Independent oligopoly
(d) None of these
Q.60- which of these is the best example of oligopoly?

(a) OPEC
(b) SAARC
(c) WTO
(d) GATT
Q.61- Monopolist can fix price of goods whose elasticity is _________.

(a) Less than 1
(b) More than 1
(c) Elastic
(d) Inelastic
Q.62- Kinked demand curve is observed in _________.

(a) Duopoly market
(b) Monopoly market
(c) Competitive market
(d) Oligopoly market
Q.63- Perfectly competitive firm faces:

(a) Perfectly elastic demand curve
(b) Perfectly inelastic demand curve
(c) Zero
(d) Negative
Q.64- In perfect competition when the firm is a price taker, which curve among the following will be a straight
line?
(a) Marginal cost
(b) Average cost
(c) Total cost
(d) Marginal Revenue
Q.65-“Price Discrimination” can be best exercise by the Seller in _________

(a) Oligopoly
(b) Monopoly
Q.66- In Oligopoly the kink in the demand curve is more due to _________.
(a) Discontinuity in MR
(b) Discontinuity in AR
(c) Fulfillment of the assumption that a price fall is followed by the other and a price increase by a firm
is not followed by the other
(d) Price war among the firms
Q.67- A firm Encounters “shut down” point when ________________.

(a) Marginal cost Equals the price of the profit maximising level of out put
(b) Average fixed cost Equals the price at the profit maximising level of output
(c) Average Variable cost Equals the price at the profit maximising level of output
(d) Average Total cost Equals the price at the profit maximising level of output

Q.68- Under which market Condition firms make only normal profit in the long run?
(a) Oligopoly
(b) Monopoly
(d) Duopoly
Q.69- In Monopolistic competitive excess capacity in the firm ____________.

(a) Always Exists
(b) Sometimes Exists
(c) Never Exists
(d) None of the above
Answer
1. (d) 2.(d) (a) 3. (a) 4. (c)
5. (a) 6. (a) 7. (c) 8. (b)
9 (c) 10. (c) 11. (b) 12. (d)
13. (a) 14. (d) 15. (d) 16. (c)
17. (b) 17. (d) 18. (c) 19.c) 20(d)
21 (d) 22 (a) 23 (d) 24 (d)
25 (d) 26 (a) 27 (c) 28 (c)
29 (b) 30 (b) 31 (b) 32 (c)
33 (c) 34 (b) 35 (c) 36 (a)
37 (c) 38 (d) 39 (a) 40 (b)
41 (c) 42 (a) 43 (c) 44 (d)
45 (d) 46 (d) 47 (c) 48 (a)
49 (c) 50 (d) 51 (d) 52 (d)
53 (d) 54 (d) 55 (b) 56 (c)
57 (d) 58 (c) 59 (a) 60 (a)
61 (d) 62 (d) 63 (a) 64 (d)
65 (b) 66 (c) 67 (c) 68 (c)
69 (a)

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Microeconomics ….

Market & Price determination under different market

Market and Price determination under

7. Future market- transactions which involve contracts of the future date

8. Regulated market –transaction are statutorily regulated

9. Unregulated market- free market with no restriction on transaction.

Market based on competition :

10. Perfect competition

11. Pure competition

12. Monopoly competition

13. Monopolistic competition

14. Oligopoly competition.

Unique Academy 4.1 CS Shubham Abad

15. Concept of TR, AR, MR.

16. TR means price * quantity

18. Upward slope

20. MR- change in total revenue/change in quantity

21. Relationship among MR , AR and elasticity MR = AR x [( e-i-)/e]

Equilibrium point (where to stop production):

Profit determination in SHORT RUN:

Unique Academy 4.2 CS Shubham Abad

32. Price Elasticity of perfect competitive firm is perfectly elastic

33. For a perfect competitive firm, P = AR = MR =demand

Unique Academy 4.3 CS Shubham Abad

42. AR and MR for monopoly form, both are negatively sloped

Unique Academy 4.4 CS Shubham Abad

61. There is no define demand curve for an oligopoly firm

62. Kinked demand curve was explained by “ Sweezy"

64. The kinked demand curve is kinked at the prevailing price

65. Price rigidity is found where the demand curve is kinked

68. Types of oligopoly

Unique Academy 4.5 CS Shubham Abad

Q.1- Which of the following is not an essential condition of pure competition?

Unique Academy 4.6 CS Shubham Abad

Q.4- Profits of the firm will be more at:

Q.6- Under monopoly price discrimination depends upon:

Q.7- Firms in a monopolistic market are price _________:

Q.8- Market which have two firms are known as:

Q.9- Monopolist can determine:

Q.10- MR of n th unit is given by:

Unique Academy 4.7 CS Shubham Abad

(d) Monopolistic competition

Q13- Given the relation MR=P (1- 1 e ). If e<1, then

Q.14- For maximum profit, the condition is:

Q.15- Equilibrium price may be determined through:

Q.16- If price is forced to stay below equilibrium price:

Q.17- An increase in supply with unchanged lead to :

Q.18- In the long run:

Q.19- Condition for producer equilibrium is:

Unique Academy 4.8 CS Shubham Abad

Q.23- A monopolist is able to maximize his profits when:

Q.27- Kinked demand curve hypothesis is given by:

Q.28- Supernormal profits occur, when :

Unique Academy 4.9 CS Shubham Abad

(c) May be equal or unequal parts

Q.31- Competitive firm in the long run earn:

Q.32- For a monopolist, the necessary condition for equilibrium is:

Q.33- A firm will shut down in the short run if:

Q.35- ______ is a ideal Market.

Q.37- Which market have characteristic of product differentiation?

Q.38- Which of these are characteristic of perfect Competition.

Q.39- MR Curve = AR = Demand Curve is a feature of which kind of Market?