Chapter 6 – Non-Competitive Markets
Q1. What is a non-competitive market?
A market where sellers have pricing power due to limited competition. Examples include monopoly, monopolistic competition, and oligopoly with fewer sellers and product differentiation.
Q2. What is a monopoly?
A market structure with a single seller, no close substitutes, and high entry barriers. The firm controls price and output decisions.
Q3. What are key features of monopoly?
One seller, no close substitute, price maker, high entry barriers, and downward-sloping demand curve with full market control.
Q4. Why is a monopoly firm a price maker?
As the only seller, the firm sets the price because it faces no competition and consumers have no alternatives.
Q5. How is demand curve in monopoly?
It slopes downward, meaning to sell more, the monopolist must reduce the price, unlike in perfect competition.
Q6. What is the relation between AR and MR in monopoly?
Marginal revenue is always less than average revenue due to the need to lower price to sell extra units.
Q7. What is the profit-maximizing condition for monopoly?
A monopoly firm is in equilibrium where MR = MC and MC is rising for maximum profit.
Q8. Can a monopolist earn long-run profits?
Yes, due to entry barriers, monopolists can earn supernormal profits even in the long run.
Q9. What is price discrimination?
Charging different prices from different consumers for the same product based on willingness or ability to pay.
Q10. What are the types of price discrimination?
First-degree (personalized), second-degree (quantity-based), and third-degree (market-segment-based) price discrimination strategies.
Q11. What is monopolistic competition?
A market structure with many sellers offering differentiated but similar products, allowing limited pricing power.
Q12. Features of monopolistic competition?
Many sellers, product differentiation, free entry and exit, advertising, some price control, and consumer choice.
Q13. What is product differentiation?
Firms differentiate products through branding, quality, features, and packaging to attract specific consumer segments.
Q14. What is selling cost?
Expenditure like advertisement or sales promotion used to influence consumer preference and increase product demand.
Q15. What happens in long run under monopolistic competition?
Firms earn only normal profit due to free entry and exit; demand becomes tangent to AC curve.
Q16. What is excess capacity?
Firms produce below their optimal capacity, leading to higher costs and inefficiency in monopolistic competition.
Q17. What is oligopoly?
A market with few large firms controlling major market share, showing interdependence in pricing and strategy.
Q18. Features of oligopoly?
Few sellers, barriers to entry, interdependence, price rigidity, and heavy non-price competition like advertising.
Q19. What is interdependence in oligopoly?
Firms must consider rivals’ reactions when making price or output decisions, leading to strategic behavior.
Q20. What is price rigidity?
Prices remain stable in oligopoly because firms fear triggering a price war by increasing or decreasing prices.
Q21. What is a kinked demand curve?
In oligopoly, it shows that demand is elastic above the current price and inelastic below, leading to price rigidity.
Q22. What is non-price competition?
Firms compete through quality, branding, service, and advertising instead of price to gain market share.
Q23. What is a cartel?
A formal agreement between firms in an oligopoly to fix prices or output, reducing competition and acting like a monopoly.
Q24. What is collusive oligopoly?
Firms cooperate either formally or informally to control prices or limit competition, forming a cartel-like structure.
Q25. What is non-collusive oligopoly?
Firms compete independently but still show price rigidity and strategic behavior without collusion.
Q26. What is duopoly?
A form of oligopoly where only two firms dominate the market, influencing each other’s decisions directly.
Q27. Why does a monopoly cause inefficiency?
Monopolies produce less and charge higher prices than competitive firms, leading to loss of consumer surplus and welfare.
Q28. Why do monopolistic firms underutilize capacity?
Due to product differentiation and downward-sloping demand, firms operate on the declining part of AC curve in the long run.
Q29. What is brand loyalty?
Strong consumer preference for a specific brand due to advertising or quality, reducing competition and increasing pricing power.
Q30. How are non-competitive markets regulated?
Governments use antitrust laws, price controls, and regulation to curb monopoly power and protect consumer interest.