QUICK REVISION OF IMPORTANT POINT OF MICRO ECONOMICS FOR COMPETITIVE EXAM

• QUICK REVISION OF IMPORTANT POINT OF MICRO ECONOMICS FOR COMPETITIVE EXAM LEC 2
• PERFECT MARKET
• MONOPOLY
• CLASSIFICATION OF MARKET STRUCTURES
• PERFECT COMPETITION:A PERFECT COMPETITIVE MARKET IS CHARACTERIZED BY COMPLETE ABSENCE OF RIVALRY AMONG THE INDIVIDUAL FIRMS.
• ASSUMPTIONS:-

1. PRESENCE OF LARGE NUMBER OF BUYERS AND SELLERS
2. PRODUCT HOMOGENEITY
3. FREE ENTRY AND EXIT OF FIRMS: WHICH MEANS THE INVESTMENT NECESSARY TO ESTABLISH FIRMS IS VERY SMALL AND EASY TO PROCURE AND GETS AND THE INCREMENT OF THE ADDITIONAL FIRM IS SO SMALL. ALL POTENTIAL HAVE ACCESS TO RESOURCES.
4. GOAL OF EVERY FIRM IS TO PROFIT MAXIMIZATION
5. NO GOVT REGULATION
6. PERFECT MOBILITY OF FACTORS OF PRODUCTION
7. PERFECT KNOWLEDGE
8. NO TRANSACTIONS COST

• THE FIRM IS IN SHORT RUN EQUILIBIRUM WHEN IT MAXIMIZES ITS PROFITS DEFINED AS DIFFERENCE BETWEEN TOTAL COST AND TOTAL REVENUE
• IN PERFECT COMPETITION THE CONDITION FOR THE SHORT RUN EQUILIBRIUM IS GIVEN BY SLOPE OF MC>MR
• IN PERFECT COMPETITION MC IS LESS THAN MR IT MEANS TOTAL PROFIT HAS NOT MAXIMIZED
• MC=MR THEN SHORT RUN PROFITS ARE MAXIMIZED
• INDUSTRY FIX THE PRICE AND FIRM IS PRICE TAKER
• THE LONG RUN SMC=LMC=LAC=AR=MR
• THE PRICE IN THE PERFECTLY COMPETITIVE MARKET IS UNIQUE WHICH IMPLIES THAT ALL THE FIRMS IN THE INDUSTRY HAVE THE SAME MINIMUM LONG RUN AVERAGE COST
• OBJECTIVE TYPE QUESTIONS
• WHICH OF THE FOLLOWING IS TRUE IN PERFECTLY COMPETITIVE MARKET:

a)    TOTAL REVENUE RISES CONTINUOUSLY AT CONSTANT RATE

b)    AVERAGE REVENUE IS CONSTANT AT ALL LEVELS OF OUTPUT

c)    MARGINAL REVENUE IS CONSTANT AT ALL LEVELS OF OUTPUT

d)    ALL OF THE ABOVE d

• WHICH OF THE FOLLOWING IS A MARGINAL REVENUE RULE FOR SHORT RUN EQUILIBRIUM OF A FIRM

a)    PRICE MUST BE GREATER THAN OR EQUAL TO AVERAGE VARIABLE COST

b)    MARGINAL COST MUST BE EQUAL TO MARGINAL REVENUE

c)    MARGINAL COST MUST BE HIGHER THAN MARGINAL REVENUE AFTER EQUILIBRIUM

d)    ALL OF THE ABOVE d

• BREAK EVEN POINT OF A FIRM OCCURS WHERE ITS

a)    TOTAL REVENUE> TOTAL COST

b)    TOTAL REVENUE< TOTAL COST

c)    TOTAL REVENUE=TOTAL COST c

d)    NONE OF THE ABOVE

• SHUT DOWN POINT FOR A FIRM IS A SITUATION WHERE ITS

a)    AVERAGE REVENUE= AVERAGE COST

b)    AVERAGE REVENUE > AVERGAE COST

c)    AVERAGE REVENUE=AVERAGE VARIABLE COST c

d)    AVERAGE REVENUE > AVERAGE VARIABLE COST

• IF THE INCREASE IN DEMAND AND SUPPLY IS OF EQUAL MAGNITUDE THE PRICE AT THE OLD EQUILIBRIUM WILL BE -------- THE PRICE AT THE NEW EQUILIBRIUM

a)    EQUAL TO a

b)    GREATER THAN

c)    LESS THAN

d)    NONE OF THE ABOVE

• THE SUPPLY CURVE OF INDIVIDUAL FIRMS IS PERFECTLY------BUT IS------ FOR THE WHOLE INDUSTRY IN THE SHORT PERIOD

a)    INELASTIC,ELASTIC a

b)    ELASTIC,INELASTIC

c)    ELASTIC,ELASTIC

d)    INELASTIC AND INELASTIC

• MONOPOLY

1. MONOPOLY IS MARKET STRUCTURE IN WHICH THERE IS A SINGLE SELLER HAVING NO CLOSE SUBSTITUTE FOR THE COMMODITY HE PRODUCES.
2. SINCE A SINGLE SELLER WITH NO COMPETITION
3. HE HAS TO FIX THE PRICES TO HIS OWN ADVANTAGE
4. PURE MONOPOLY:-WHEN A SINGLE SELLER PRODUCES A PRODUCT WHICH HE HAS NEITHER A NEAR NOR A REMOTE PRODUCT
5. SIMPLE MONOPOLY:-MONOPOLIST CAN NOT SET PRICE TO MAXIMIZE THE INDUSTRY PROFIT WITHOUT ATTRACTING ENTRY BUT HE MAY SET A LOWER YET STILL PROFITABLE PRICE AT WHICH ENTRY WILL NOT BE ATTRACTED
6. IN SIMPLE MONOPOLY SOME CLOSE OR REMOTE PRODUCTS ARE ALSO AVAILABLE
7. CROSS ELASTICITY OF SUBSTITUTION FOR THE MONOPOLIST’S PRODUCT IS LOW
8. MONOPOLY
9. THE SHORT RUN EQUILIBRIUM OF THE MONOPOLIST: WHEN IT MAXIMIZES THE PROFIT
10. MC=MR AND SECONDLY THE SLOPE OF MC IS GREATER THAN THE SLOPE OF MR AT THE POINT OF INTERSECTION
11. DISCRIMINATING MONOPOLY:-MONOPOLIST PRODUCERS CHARGES DIFFERENT PRICES TO DIFFERENT BUYERS FOR SAME PRODUCT
12. BILATERAL MONOPOLY: IS A MARKET CONSISTING OF SINGLE SELLER (MONOPOLIST) AND A SINGLE BUYER(MONOPSONIST) THE EQUILIBRIUM CAN NOT BE DETERMINED BY DEMAND AND SUPPLY AND ECONOMIC ANALYSIS CAN ONLY DEFINE THE RANGE WITHIN WHICH THE PRICE WILL EVENTUALLY BE SETTLED. THE LEVEL OF PRICE AND OUTPUT WILL BE DETERMINED BY NON ECONOMIC FACTORS SUCH AS BARGAINING POWER,SKILL AND STRATEGIES OF THE PARTICIPANT FIRMS

• OBJECTIVE QUESTIONS
• THE SIZE OF THE MONOPOLIST ‘S PLANTS AND THE DEGREE OF UTILIZATION OF ANY GIVEN PLANT SIZE,DEPEND ENTIRELY ON THE :

a)    FACTOR PRICE

b)    PRICE OF THE GOODS

c)    MARKET DEMAND C

d)    MARKET SUPPLY

• `IN PRICE DISCRIMINATION ,A MONOPOLIST LOWERS THE PRICE AT THE MARKET WHERE THERE IS

a)    HIGHER ELASTICITY

b)    LOWER ELASTICITY

c)    EXPENSIVE FACTOR PRICE

d)    NONE OF THE ABOVE

• GIVEN THE COST CONDITIONS,OUTPUT IS ------- AND PRICE------- UNDER MONOPOLY AS COMPARED TO PERFECT COMPETITION

a)    HIGHER,SAME

b)    LOWER,HIGHER B

c)    HIGHER,LOWER

d)    SAME,LOWER

• IF THE ALLOCATION OF THE OUTPUT BETWEEN THE TWO SUB MARKET A AND B RESULT IN EQUAL BUT NEGATIVE MARGINAL REVENUE IN EACH SUB MARKET,THE MONOPOLIST CAN INCREASE TOTAL REVENUE BY REDUCING SALES IN EACH SUB MARKET TO POINT WHERE

_a)        MR_A=MR_B

b)    MR_A<MR_B

c)    MR_A>MR_B

d)    MR_A=MR_B    =0 D

·         WHEN A PRODUCER CHARGES A LOWER PRICE IN THE WORLD MARKET THAN IN THE HOME MARKET,HE IS SAID TO BE -------IN THE WORLD MARKET

a)    PRICE DISCRIMINATION

b)    CHEAP MARKETING

c)    DUMPING C

d)    EXPENSIVE MARKETING