Assignment 3

on Economics

Name: Zonunmawii
Roll No. : 22
Regn. No. : 11003689
Section: S1013

Q1 A particular car manufacturer regards his business as

highly competitive as he is keenly aware of his rivalry with
other car manufacturers. Like others, he undertakes
vigorous advertising campaigns and seeks to convince
potential buyers of superior quality and better style of his
automobiles and reacts quickly to claims of superiority by
his rivals. Is this an example of monopolistic competition?
Explain.

Ans: Yes, it is an example of monopolistic

competition because the product is differentiated and
there are minor changes in the same generic product. In
monopolistic competition, a market situation in which a
relatively large number of producers of similar products
but not identical product exists. By differentiating it’s
product from that rival firms, the firm can exercise some
control over price. The product differentiation manifests
itself in trademark, name of brand, quality differentiation
or in different facilities and services offered to the
customer.

Q2 There are practically very few real life instances of

perfect competition. Even so it is debatable if these few
examples meet all the criteria of perfect competition.
Which industry would you like to specify for perfect
competition in the Indian scenario? Support your answer
with relevant reasons.

Ans: The Indian Railways can be called a perfect

competition because railways in India are controlled and
function under only under the government of India. No
private company or business firm can run a train in India.
So, the government has full control over the price of the
tickets. There is only one seller and large number of
buyers. There is full restriction on the entry of another firm
and there are no close substitutes.

Q3 The restaurant business comprises of several

producers selling differentiated products priced differently
according to quality, ambience, location and other factors.
Which market structure characterizes this business?
Critically analyze your answer with appropriate reasoning.

Ans: The restaurant business comprises of several

producers selling differentiated products priced differently
according to quality, ambience, location and factors. It is a
monopolistic competition. In real life, it is monopolistic
that really exists. It is a situation of the market where
there are many buyers and sellers of the product of other
sellers. This product differentiation manifests itself in
trademark, name of the brand, quality differentiation or in
different facilities and services offered to the customers.

Q4 “Kinked demand curve operates in the mobile phone

service provider market.” (Airtel, TATA Docomo, Vodafone,
Reliance etc.).Do you agree with this statement? Explain
your answer critically giving reasons to support your
answer.

Ans: “Kinked demand curve operates in the mobile

phone service provider market.” The statement is true
because the form of market is oligopoly. In oligopoly,
there are few big sellers but they are smaller in number.
There is high degree of interdependence. There are large
numbers of buyers. Price and output determination is a
very complex phenomenon in oligopoly, as each firm faces
two demand curves. Out of this two demand curves one is
highly elastic and one is less elastic. This is due to the
different price reactions by rival firms in response to a
move to change its price by one firm.

Q5 “The Organization of Petroleum Exporting countries

(OPEC) comprising of seven Oil producing Nations is an
oligopoly.” Do you agree with this statement? Analyze
your answer giving reasons in support of your argument.

Ans: “The Organization of Petroleum Exporting

countries (OPEC) comprising of seven Oil producing
Nations is an oligopoly.” I agree with the statement
because in the feature of oligopoly is it written that there
are only a few big sellers with large number of buyers.
There is high interdependence among the firms. In this
case, the product is identical and the buyer is indifferent
among the entire product. So, we can even say that it is
pure oligopoly. Oligopoly is a market where a few
dominant sellers sell different or homogeneous products
under continuous conscious of rivals’ actions.

Q6 “Perfect competition implies perfect dissemination of

information about products and pricing in the market”.
Give an example of a market from the real world where
this could actually happen.

Ans: “Perfect competition implies perfect

dissemination of information about products and pricing in
the market”. There are many sellers in the market selling
homogeneous product; the buyers are not able to
distinguish the product of one firm from that of another
firm. So, the consumers are fully aware of the prevailing
price in the market. With the rise in the price by one seller
the consumer will shift to another seller because they do
not have any reason to prefer any product from another.
Like the sale of unbranded vegetables in the market, it is
difficult for the consumers to differentiate the product by
the consumer. So, they are indifferent towards various
sellers with respect to the purchase of the product.

Q7.What is the most important reason for rise and spread

of oligopolies in the global market such as banking and
pharmaceuticals? Explain your answer with appropriate
reasoning.

Ans: The most important reason for rise and spread

of oligopolies in the global market such as banking and
pharmaceuticals is to give rise to wide range of different
outcomes.

Q8. Give an example of a monopoly from the Indian

economy. Do you think that monopoly creates inefficiency
in the market?

Ans: The Indian Railways is the form of monopoly in

the Indian market. It is run by the Government of India.
Even though it is running efficiently in the place that it is
located. But it will be much faster improve if the market is
transform into an oligopoly market. Since the Indian
railways belong to a monopoly market, there is no
competition and cannot be competitive in the market. So,
the improvement process is slow.

Q9. Explain if the following companies are a part of perfect

competition, monopolistic competition, monopoly or
oligopoly. Give a reason to support your answer.
(a) Lovely professional University

(b) State Bank of India

Ans: a) Lovely Professional University: It belongs to a

monopolistic market because there are many other
colleges that have the same facility and the same course.
There are also many students who are attending classes in
this University. Whereas monopolistic competition is the
form of market in which there are large number of buyers
and sellers. It allows product differentiation and has a
partial control over the price of the product.

b) Reserve Bank of India: It belongs to a monopoly market

because is the only bank that has the right to issue
currency in the market. It controls the functioning of
commercial banks. No commercial bank can enter the
position or stand in the position of the commercial bank
but still there are large numbers of buyers. They have full
control over the rate of interest in the market and there
are no close substitutes to it.

Q10. “If I sell a perfume concentrate which goes as raw

material into manufacture of perfumes, I could be a part of
perfect competition, but if I sell branded perfumes, I could
be a part of monopolistic competition.” Critically analyze
this statement.

Ans: If I sell perfume concentrate no one will be able

to differentiate it from another perfume. In perfect
competition there is homogeneous product in the market.
But if I sell branded perfumes it is no more a
homogeneous product. It can be differentiated from other
product so we can say that it is a monopolistic product.

Q11. Give an example of an oligopoly from the Indian

market.

Ans: The Airlines in India is one good example of

oligopoly in India. They are run by a few big companies
and are interdependent on each other. The change in the
price by one airline (e.g.: Kingfisher, Indigo etc.,) will have
a great impact on the other airlines. Like railways the
government also runs Air India but it is not a monopoly,
other firms are also allowed to enter in the market which
creates competition among them, unlike railways the
airlines are improving a lot these days.

Q12. “The demand curve is perfectly elastic in perfect

competition but downward sloping in monopolistic
competition.” Explain this statement taking examples
from the real world.

Ans: The demand curve is perfectly elastic and it is a

horizontal straight line because under perfect competition
average revenue is equal to marginal revenue (AR=MR).
But in monopolistic competition the firms demand curve is
slopping downward because average revenue is more
than marginal revenue (AR>MR).

Q13 Analyze if following companies are a part of perfect

competition, monopoly, monopolistic competition or
oligopoly.
(a) Google

(b) Kingfisher Airlines

Ans: a) Google: Google can be under monopoly form

market because it is only the famous search engine all
over the world no other site became more popular then
like the Google .but there is no restriction of the entry of
any other site .
b) Kingfisher Airlines: Kingfisher Airlines belongs to an
oligopoly market. There are only a few big firms that deals
in airways. They are interdependent to each other with
other airlines. The change in the price of the other airlines
will have a great impact on Kingfisher in India.

Q14 An increase in the demand for films is likely to

increase salaries of actors and actresses. Is long run
supply curve for films likely to be horizontal or upward
sloping?

Ans: The long-run supply curve depends on the cost

structure of the industry. If there is a fixed supply of actors
and actresses, as more films are produced, higher salaries
must be offered. Therefore, the industry experiences
increasing costs. In an increasing-cost industry, the long-
run supply curve is upward sloping. Thus, the supply curve
for videos would be upward sloping.
Q15. Commodities are generally part of perfect
competition but introduction of brands introduces
monopolistic competition. Critically analyze this
statement.

Ans: Yes it’s true that introduction of brand name any

commodity transfer it to monopolistic competition when
the good are sold without any brand name then it belongs
to perfect competition as the all same good in market .But
introduction of the brand name differentiate it from other
goods .Also there would be price discrimination in the
market according to the quality.