Prelims High-Yield Explanations & Traps

• one where an individual firm is unable to influence the price at which the product is sold in the market
• that the increase in total revenue from selling an extra unit of the commodity is greater than the increase in total cost for producing the additional unit
• that the lowering of total cost by reducing one unit of output is greater than the loss in total revenue due to this reduction
• the point where MR = MC and MC is rising
• a time period in which all factors of production can be varied
• the percentage change in demand for the good divided by the percentage change in its price
• a time period in which some factors of production cannot be varied

Essential Definitions & Formulas

Mark etsets etsets ets We recall that perfect competition

a market structure where both consumers and firms are price takers.

We discussed that the perfect competition market structure

approximated by a market satisfying the following conditions: (i) there exist a very large number of firms and consumers of the commodity, such that the output sold by each firm is negligibly small as compared to the total output of all the firms combined, and similarly, the amount purchased by each consumer is extremely small in comparison to the quantity purchased by all consumers together; (ii)firms are free to start producing the commodity or to stop production; i.

A market that has a small number of large firms

called an oligopoly.

SIMPLE MONOPOLY IN THE COMMODITY MARKET A market structure in which there is a single seller

called monopoly.

A monopoly market structure requires that there

a single producer of a particular commodity; no other commodity works as a substitute for this commodity; and 2021–22 ‘I’ ‘M’ Perfect Competition 6.

Market Demand Curve

the Average Revenue Curve The market demand curve in Figure 6.

If the market price

at p 0 , consumers are willing to purchase the quantity q 0 .

This is also expressed by saying that the quantity purchased by the consumers

a decreasing function of the price.

The same

also expressed by stating for this situation to persist over time, sufficient restrictions are required to be in place to prevent any other firm from entering the market and to start selling the commodity.

Markets Competitive Behaviour versus Competitive Structure A perfectly competitive market has been defined as one where an individual firm is unable to influence the price at which the product

sold in the market.

This is clearly opposite of the meaning of what

commonly understood by competition or competitive behaviour.

This

because both Coke and Pepsi possess the power to influence the market price of soft drinks, while the individual farmer does not.

In a monopoly there

no other firm to compete with.

Introductory Microeconomics that price

a decreasing function of the quantity sold.

This idea

reflected in the statement that the monopoly firm faces the market demand curve, which is downward sloping.

Since the firm

assumed to have perfect knowledge of the market demand curve, the monopoly firm can decide the price at which it wishes to sell its commodity, and therefore, determines the quantity to be sold.

TR

represented as a function of the quantity sold.

This

not the equation of a straight line.

It

a quadratic equation in which the squared term has a negative cofficient.

The same

visible in Figure 6.

Related PYQs (3)