REVISION OF MARKET STRUCTURE 2 MONOPOLISTIC COMPETITION WITH THEORY AND OBJECTIVE QUESTIONS

• REVISE ECONOMICS FOR COMPETITIVE EXAM
  MARKET STRUCTURE 2
  MONOPOLISTIC ( THEORY ALONG WITH OBJECTIVE TYPE QUESTIONS)
  ECONOMICS FOR COMPETITIVE EXAM
• MONOPOLISTIC COMPETITION

1. IS MARKET STRUCTURE IN WHICH A LARGE NUMBER OF SELLERS SELL DIFFERENTIATED PRODUCTS WHICH ARE CLOSE,BUT NOT PERFECT SUBSTITUTE FOR ONE ANOTHER
2. SYNTHESIS OF CHARACTERISTICS OF PERFECT COMPETITION AND MONOPOLY
3. THE ADVOCATE OF THIS APPROACH LIKE PIERO SRAFFA AND E.H. CHAMBERLIN WERE IN VIEW OF THAT THE ASSUMPTIONS OF PURE COMPETITION DO NOT FIT THE REAL WORLD
4. ASSUMPTIONS
5. LARGE NUMBER OF BUYERS AND SELLERS
6. EACH SELLER SELLS PRODUCT DIFFERENTIATED FROM THAT OF OTHERS,YET THEY ARE CLOSE SUBSTITUTE OF ONE ANOTHER
7. FREE ENTRY AND EXIT OF THE FIRMS
8. THE GOAL OF THE FIRM IS PROFIT MAXIMIZATION BOTH IN THE SHORT RUN AND THE LONG RUN
9. TECHNOLOGY AND FACTOR PRICES ARE GIVEN AND THE FIRM IS AWARE OF REVENUE AND COST CURVES
10. CHAMBERLIN MAKES THE HEROIC ASSUMPTION THAT BOTH DEMAND AND COST CURVES FOR ALL THE PRODUCTS ARE UNIFORM THROUGHOUT THE GROUP

• SHAPE O THE COST CURVES AND SELLING COST

1. CHAMBERLIN IN HIS MODEL OF MONOPOLISTIC COMPETITION HAS ASSUMED THE TRADITIONAL U SHAPED COST CURVES AND IN ADDITION HE HAS INTRODUCED  A NEW COST THAT IS SELLING COST.
2. SELLING COSTS ARE DEFINED AS THE COSTS INCURRED IN ORDER TO ALTER THE POSITION OR THE SHAPE OF THE DEMAND CURVE FOR A PRODUCT
3. SELLING COST INCLUDE LL THE EXPENSES THAT ARE INTENDED TO PROMOTE THE SALE INCLUDING COST OF ADVERTISEMENT,SALESMAN’S SALARIES,EXPENSES OF SALES DEPARTMENT,MARGIN GRANTED TO DEALERS,WHOLESALERS AND RETAILERS,WINDOW DISPLAYS AND DEMONSTRATION OF NEW GOODS.

• SHORT RUN EQUILIBRIUM

1. FACES DOWNWARD SLOPING CURVES HAVING A SMALLER SLOPE
2. THE DEMAND CURVE IS THE PRODUCT OF
3. STRONG PREFERENCE OF A SECTION OF CONSUMERS FOR A PARTICULAR PRODUCT
4. THE QUASI MONOPOLY OF THE SELLER OVER SUPPLY
5. IN THE SHORT RUN THE FIRM WILL BE IN EQUILIBRIUM WHEN IT IS MAXIMIZING ITS PROFITS MC=MR AND MC MUST CUT MR FROM THE BELOW
6. IN THE SHORT RUN THE FIRMS MAY ATTEMPT TO MAXIMIZE THEIR PROFITS BY CHANGING THE NATURE OF THE PRODUCT AND BY ADVERTISEMENT EXPENDITURE

• LONG RUN EQUILIBRIUM
• IN THE LONG RUN TO ACHIEVE FULL EQUILIBRIUM TWO TYPES OF LONG RUN ADJUSTMENT WILL HAVE TO TAKE PLACE

1. AT THE ESTABLISHED PRICE THE QUANTITY OFFERED FOR SALE MUST BE EQUAL THE QUANTITY THAT THE CUSTOMERS WILL TAKE
2. THE SECOND ADJUSTMENT RELATE TO THE ENTRY AND EXIT OF THE EXISTING FIRMS

• IN THE LING RUN EQUILIBRIUM AVERAGE REVENUE CURVE WILL BECOME MORE ELASTIC
• FIRMS WILL EARN NORMAL PROFIT,AR=AC
• EXCESS CAPACITY IS THERE
• OBJECTIVE TYPE QUESTIONS
• FIRMS HAVE CHRONIC EXCESS CAPACITY IN

a)    DUOPOLY

b)    PERFECT COMPETITION

c)    MONOPOLISTIC COMPETITION ( THE RIGHT ANSWER IS C)

d)    OLIGOPOLY

• SELLING COST SHIFTS ---- CURVE TO THE ------

a)    SUPPLY,RIGHT

b)    DEMAND ,LEFT

c)    DEMAND,RIGHT SO THE RIGHT ANSWER IS C

d)    NONE OF THE ABOVE

• WHICH OF THE FOLLOWING IS TRUE AT EQUILIBRIUM IN MONOPOLISTIC COMPETITION

a)    PRICE IS GREATER THAN MARGINAL COST

b)    AVERAGE REVENUE IS GREATER THAN MARGINAL REVENUE

c)    BOTH a and b SO THE RIGHT ANSWER IS C

d)    AVERAGE REVENUE IS EQUAL TO MARGINAL REVENUE

• WHO INTRODUCED SELLING COST IN THE THEORY OF FIRM FOR THE FIRST TIME

1. CHAMBERLIN SO THE RIGHT ANSWER IS A
2. COURNOT
3. SWEEZY
4. BERTAND

• CONSIDER THE FOLLOWING

1. LARGE NUMBER OF BUYERS AND SELLERS
2. FIRMS PRODUCE DIFFERENTIATED PRODUCTS
3. FREE ENTRY AND EXIT OF THE FIRMS
4. PERFECT KNOWLEDGE ABOUT TECHNOLOGY

·         WHICH OF THE ABOVE CHARACTERISTICS OF MONOPOLISTIC COMPETITION

a)    1 AND 3

b)    2 AND 3

c)    2,3,4

d)     1,2,3,4 THE RIGHT ANSWER IS D

• GIVEN THAT COST CONDITIONS ARE SAME IN MONOPOLISTIC COMPETITION PRICE IS----- AND OUTPUT IS ----- A COMPARED TO PERFECT COMPETITION

a)    HIGH,SAME

b)    SAME,LOWER

c)    HIGH,LOWER SO THE RIGHT ANSWER IS C

d)    LOWER AND HIGHER