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Homework-III
School of LHSB Department of Management
Name of the faculty member P. Kansra
Course No: ECO151 Course Title: Micro Economc Theory
Class: BBA (Hons.)&B.Com(Hons.) Semester I Batch : 2010
Max. Marks : 10 Date of Allotment_18/10/10 Date of Submission_30/10/10
S.No Roll No Objectives of Academic Topic Organization Evaluation Details
Activity
All students All Topics Students will attempt
Applications of different
all the questions and
market forms i.e. Perfect
competition, Monopoly, submit the same.
Monopolistic competition
and Oligopoly. Subsequently a test,
where random
be of 5 marks and 5
submission. Only
assignment will be
Assignments will be
submitted only
through UMS.
Ans- In a perfect competition as there are more than one firm each firm takes a share of the
profit that the industry makes. In this case as the two fast food outlets are in perfect
competition both of them want more customer so they are reducing there price but
that is not fetching them much profit as the price is low and they are just making
supernormal profit. The two firms are continuing because it is in the long run the
margin is greater.
If the two firms merge they will be together and the competition will decrease, they
can now fix their own price and that will be higher and the customers will be left with
no options but to come to them and they can earn profit.ty
2 You must read about ‘Fan Makers Association’ or ‘Auto Riksha Union’ or FICCI
.What kind of services does each one of them provide? Do they charge a price for
their services? What kind of market do they represent? Do you understand their
market strategy and tactics?
3 A particular car manufacturer regards his business as highly competitive, as he is
keenly aware of his rivalry with the other car manufacturer. Like others, he
undertakes vigorous advertising campaigns and seeks to convince potential buyers of
the superior quality and better style of his automobiles and reacts very quickly to
claims of superiority by rivals. Is this what meant by perfect competition from an
economic point of view? Explain.
Ans- Perfect competition means that there are many firms in the industry and many buyers
and the price of the commodities is determined by the industry and all the firms has to
oblige that. The car manufacture is in a perfect competition market where there are
many such similar firms producing cars and he has to sell the cars in the price
determined by the industry to maximize his profit he has to reduce is average cost and
he is having a differentiation strategy to attract customers. Through this strategy the
firm can have more customers than its competitors and can earn more profits in
comparison to the other firms.
4 Is monopoly always socially undesirable? Take any real life example of monopoly in
India and build your logic in favour of or against this?
Ans- Yes monopoly is socially undesirable because in monopoly there is one firm and
many consumers and the firm is the price maker there is no substitute for the
commodities produced by the firm and the consumers will have to be fixed with one
firm only. Now the firm can fix any price for its goods and the consumer will have to
pay that as there are no substitutes and the price an be very high and the firm earns
supernormal profit.
Indian railways is an example of monopoly and the ticket fares are decided by the
railway only and the people ha to abide by that fare only they will have no other
option and the price of ticket for some ca be more than affordable.
5 Compare the market environment of monopolistic competition with that of perfect
competition, quoting real world business examples
In monopolistic product are heterogeneous, and the firm is a price maker as seller
Ans- makes the product unique by some difentiation and has control over small section of
market price.
Eg- Retail store(detergent)
There are many firms which selling detergents by name and quality differentiation at
different prices. so they can decide the price of products and can sell at desired price
but the price is decided by where he get maximum sales + maximum profit and
control over small section of market.
And in perfect competition the goods are homogeneous and firm is a price taker and
the industry is a price maker so the firm has no control over market price.
For example:- agriculture commodities that is serial market in this the seller have to
take the same price which is decided by the industry and have can’t take mote price
than the decide one from the consumer.
ii. Microsoft
8 What are the economic entry barriers which create monopoly? Illustrate with
examples from Indian economy
COPYRIGHT OR PATENT- the firm can issue copyright or patent for its product
that no one can copy its product and sell in the market.
HIGH SWITCHING COST-the firm can have high switching cost associated with its
product that the consumers never think of moving into products of other company.
Ans-