Class 12th Economics - Non-Competitive Markets Case Study Questions and Answers 2022 - 2023
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Non-Competitive Markets Case Study Questions With Answer Key
12th Standard CBSE
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Reg.No. :
Economics
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Monopolistic Competition in a commodity market arises due to the commodity being non-homogenous. This kind of a structure is more commonly visible. The demand curve faced by the firm in this kind of market is not horizontal (perfectly elastic) as in the case with perfect competition. The demand curve faced by the firm is also not the market demand curve, as in the case with monopoly. In the case of monopolistic competition, the firm expects increase in demand if it lowers the price. We know that demand curve of a firm is also its AR curve. The given firm, therefore has a downward sloping AR curve. The Marginal Revenue (MR) is less than Average Revenue (AR) and also downward sloping. The firm increases its output whenever the MR is greater than Marginal Cost (MC).
(a) Explain why the demand curve facing a firm under monopolistic competition is negatively sloped.
(b) Comment on the shape of the MR curve faced by the given firm under Monopolistic Competition.(a)
Case Study
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Answers
Non-Competitive Markets Case Study Questions With Answer Key Answer Keys
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(a) The demand curve facing a firm under monopolistic competition is negatively sloped (i.e., downward sloping) because the firm expects increase in demand if it lowers the price of its product. The demand curve of a firm is also its AR curve. Thus firm, therefore has downward sloping AR curve.
(b) The Marginal Revenue is less than the Average Revenue for the given firm. Thus as AR curve is downward sloping the MR curve is also downward sloping because of the above mentioned fact, i.e., when AR falls, MR will also fall. Hence, MR curve is less than the AR curve and also downward sloping.
