NCERT Notes For Class 11 Micro Economics Chapter 6 NON COMPETITIVE MARKETSOMICS

NCERT Notes for Class 11 Micro economics Chapter 6 NON COMPETITIVE MARKETSOMICS

Class 11 Micro economics Chapter 6 NON COMPETITIVE MARKETSOMICS

NCERT Notes for Class 11 Micro economics Chapter 6 NON COMPETITIVE MARKETSOMICS, (Economics) exam are Students are taught thru NCERT books in some of state board and CBSE Schools. As the chapter involves an end, there is an exercise provided to assist students prepare for evaluation. Students need to clear up those exercises very well because the questions with inside the very last asked from those.

Sometimes, students get stuck with inside the exercises and are not able to clear up all of the questions.  To assist students, solve all of the questions and maintain their studies without a doubt, we have provided step by step NCERT Notes for the students for all classes. These answers will similarly help students in scoring better marks with the assist of properly illustrated Notes as a way to similarly assist the students and answering the questions right.

NCERT Notes for Class 11 Micro economics Chapter 6 NON COMPETITIVE MARKETSOMICS

Class 11 Micro economics Chapter 6 NON COMPETITIVE MARKETSOMICS

 

Monopoly Market

  • A market situation in which a single seller or firm controls the entire supply of a product which has no close substitutes.
  • Mono means single and poly means seller So monopoly means single seller.
  • Examples of Monopoly market are INDIAN RAILWAY, KSEB.

FEATURES OF MONOPOLY MARKET

  1. Singles seller for a product
  2. Absence of close substitutes
  3. Entry of new firms to market is denied
  4. Monopolist has complete control over supply of the product
  5. Firm and Industry are the same
  6. Producer is the Price maker. Monopolist is the Price-maker, because Being the single seller, the Monopolist can control the price. So he is called the Price maker.He can sell less by increasing price or sell more by decreasing price.

Market Demand Curve of Monopoly

  • In a monopoly market the firm and industry are the same.
  • So the firm’s Demand curve and market Demand curve would be the same.
  • Demand curve of a Monopoly firm is negatively sloped.
  • This is because the monopolist can sell more quantity at a less price and less quantity at a higher price.
  • Market demand curve is shown by the following.

TOTAL REVENUE – TR

Total Revenue is the total amount of revenue earned by a firm By selling output in the market.

TR = P x Q P = PRICE Q = Quantity

Shape of TR Curve is inverted parabola. It is shown by the following diagram.

 

AVERAGE REVENUE – AR

Average Revenue is Revenue per unit of output AR is calculated by dividing TR by quantity of output sold.

𝑨𝑹 = 𝑻𝑹/𝑸 = 𝑷 × 𝑸/𝑸 = 𝑷 .. . 𝑨𝑹 = 𝑷

In Monopoly AR is equal to ‘P’ So AR curve and market Demand curve would be the same.

MARGINAL REVENUE – MR

Marginal Revenue is the addition to the Total revenue,when an extra unit of output is sold. It is the rate of change in TR

The following diagram shows AR and MR curves of a monopoly firm.

Relationship between AR and MR

  • MR will always be less than AR.
  • At any Output MR curve is below AR If the slope of AR curve is high, MR curve will be far below AR curve If the slope of AR curve is low, the Vertical distance between AR and MR Will be small.

AR and MR curves have negative slopes. MR may be zero or negative. But AR will Never be zero or negative

RELATIONSHIP BETWEEN ‘TR’ AND ‘MR’

  • When TR decreases, MR is negative
  • When TR is maximum, MR is zero
  • When TR increases at a diminishing Rate, MR diminishes
MR and Price Elasticity of Demand
  • When MR is positive, price elasticity of Demand will be more than one.(e > 1)
  • When MR is zero, price elasticity of Demand will be one.(e = 1)
  • When MR is negative, price elasticity of Demand will be less than one.(e < 1)
SHORT RUN EQUILIBRIUM OF A FIRM UNDER MONOPOLY

Short run equilibrium can be explained with the following situations.

  1. The simple case of zero cost.
  2. Total Revenue and Total Cost Curve approach
  3. Marginal Revenue and Marginal Cost approach.

The simple case of zero cost.

  • It is a rare situation.
  • In such a situation the monopolist reach equilibrium, when the total revenue reaches maximum.
  • The equilibrium quantity of a monopoly with zero cost will be half of the market demand when price is zero. This is shown by the following diagram.

In the diagram equilibrium price is 5 and equilibrium quantity is

10. So The Total Revenue is 10 ×5= 50.In this situation Total

Cost is zero. So the profit = TR -TC = 50 -0= 50.

Total Revenue and Total Cost Curve approach
  • Under such a situation the firm reaches equilibrium when the difference between Total Revenue and Total Cost is maximum.

This is shown by the following diagram.

In the above diagram, the points A and C are the breakeven points. Q is the equilibrium quantity. At the equilibrium the earns maximum profit.

Marginal Revenue and Marginal Cost approach

Under such a situation a firm under Monopoly reaches equilibrium when the following conditions are satisfied.

  1. Marginal Revenue and Marginal Cost should be equal.[ MR=MC]
  2. MC curve cuts MR curve from below.

This is shown by the following diagram.

Long Run Equilibrium

In the monopoly market has only one seller both in Short Run and in Long run. So there is no difference between short run and long run under Monopoly.

Differences between MONOPOLY AND PERFECT COMPETITION

MONOPOLISTIC COMPETITION

Monopolistic Competition is a market situation in which, there are a large number of firms that produce differentiated products which are close substitutes for each other. .Eg. Soap market, Tooth paste market, biscuit market etc. Edward Chamberlin was popularized this market .It’s features are the following

  1. Large Number of Buyers and Sellers:
  2. Free Entry and Exit of Firms:
  3. Product Differentiation:
  4. Selling Cost:
  5. Lack of Perfect Knowledge:
  6. Less Mobility:
  7. More Elastic Demand Curve

Demand curve of a firm under monopolistic competition

  • Under monopolistic competition, a large number of monopolists compete with each other.
  • So each firm faces a downward sloping demand curve.
  • It means a firm can sell more only by reducing the price of the product.
  • However, here the demand curve of an individual firm is relatively more elastic.
  • This is because the products are close substitutes.
  • A fall in price of one product attracts easily the customers from other products.
  • This increases demand more than a given fall in price.. Demand curve is also the Average Revenue Curve of the firm.
  • This is shown by the following diagram.

SHORT RUN EQUILIBRIUM OF A FIRM UNDER MONOPOLISTIC COMPETITION

  • Short-run equilibrium of the firm under monopolistic competition.
  • The firm maximizes its profits and produces a quantity where the firm’s marginal revenue (MR) is equal to its marginal cost (MC).
  • The firm is able to collect a price based on the average revenue (AR) curve.
  • The difference between the firm’s average revenue and average cost, multiplied by the quantity sold (Qs), gives the total profit.
  • This is shown by the following diagram.

 

LONG RUN EQUILIBRIUM :

  • In the long run, monopolistic competition comes closer to perfect competition because the freedom of entry and exit allows firms to enjoy only normal profit.
  • Whenever some firms earn Super normal profit in the long run some other firms may be attracted to join this product group, thereby shifting the demand curve or AR curve downward and to the left.
  • Thus, entry of new firms would cause decline in market share by reducing the demand for its product.
  • Consequently, excess profit will be reduced to zero.
  • Further, if the existing firm experiences losses then the exit of firms will bring about an opposite effect and the process will continue until normal profit is earned driving excess profit to zero.
  • Seeing losses for a long time, losing firms may be induced to leave the product group there by eliminating losses.
  • Thus all firms in the long run earn only normal profit.

This type of equilibrium is called group equilibrium.

OLIGOPOLY:
  • It is a market situation in which there are a few firms that produce homogeneous or differentiated products and compete with one another.
  • The main features of Oligopoly market are the following.
  1. A few sellers
  2. Homogeneous or Differentiated products.
  3. Free entry and exit.
  4. Interdependence between firms.
  5. Selling Cost.
  6. Indeterminateness of Demand Curve.
  7. Price leadership.
DUOPOLY
  • It is a market situation in which there are only two sellers. It is a special type of Oligopoly market.
  • Economists have formed different models which examines the behaviour of duopoly firms.

1- Collusive Duopoly Model:

  • In such a model the two firms in a duopoly market do not compete with each other, they collude together and try to maximize their profit.

2- Cournot’s Duopoly Model:

  • Cournot competition is an economic model used to describe an industry structure in which companies compete on the amount of output they will produce, which they decide on independently of each other and at the same time.
  • It is named after Antoine Augustin Cournot (1801–1877) who was inspired by observing competition in a spring water duopoly It has the following features:
    • There is more than one firm and all firms produce a homogeneous product.
    • Firms do not cooperate, i.e. there is no collusion;
    • Firms have market power.
    • The number of firms is fixed;
    • Firms compete in quantities, and choose quantities simultaneously;
    • The firms are economically rational and act strategically, usually seeking to maximize profit given their competitors’ decisions.

Equilibrium conditions

  • In duopoly, as Cost of production is zero, MR = MC = 0.
  • At the last stage, supply of both firms should be equal. Supply of each producer should be one- third of total market demand in which the price is zero.

Kinked demand curve model

  • The kinked demand curve of oligopoly was developed by Paul M. Sweezy in 1939.
  • Instead of laying emphasis on price-output determination, the model explains the behaviour of oligopolistic organizations.
  • The model advocates that the behaviour of oligopolistic organizations remain stable when the price and output are determined.
  • This implies that an oligopolistic market is characterized by a certain degree of price rigidity or stability, especially when there is a change in prices in downward direction.
  • For example, if an organization under oligopoly reduces price of products, the competitor organizations would also follow it and neutralize the expected gain from the price reduction.

Comparison of different markets

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