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Questions
Features of Monopolistic Competition.
State three characteristics of monopolistic competition
State any one feature of monopolistic competition.
Explain the features of monopolistic competition.
Solution
Features of Monopolistic Competition:-
1. Large number of sellers:- There are many sellers or firms in a monopolistic competition. A single seller is not large enough to influence the market. Each one may, to a certain extent, follow an independent price and output policy without disturbing others.
2. Product Differentiation:- Product is differentiated in monopolistic competition. Products differ from each other in many ways. Product differentiation can take place in the form of brand name and trademark. Products may be differentiated in terms of colour, size, design, taste, etc.
3. Close substitutes:- Even though the products are differentiated, they are very close substitutes. For example, as far as brands are concerned, there are many close substitutes for products like soaps and garments. However, they are not perfect substitutes as in perfect competition.
4. Selling cost:- firms in a monopolistic competition promote sales by incurring selling cost. Selling cost includes all types of costs incurred to promote sales, such as cost usually incurred in the form of advertisement, exhibitions, gifts, free samples and so.
5. Freedom of Entry and Exit:- Another important feature of monopolistic competition is the freedom of entry and exists of firms. A firm is free to enter the market to produce which is a substitute for the existing products. There exist freedom of entry and exit of firms in the market.
6. Price Maker:- Under Monopolistic competition, the firm is a price maker. The firm has some control over the price cue to product differentiation. Thus, there are price differentials between the firms producing close substitutes.
7. Nature of demand curve:- The demand curve for the products of each firm is downward sloping. This means that an individual firm can sell more by reducing the price.
8. Two-dimensional competitions:- Under Monopolistic competition, the competition among the sellers take place in two-dimensional.
- Price competition:- Under Price competition, the firms compete with each other by lowering the price of the product to take advantage of higher sales.
- Non Price competition:- Under Non price competition, the firms compete with each other by making variation in the product or through selling cost. Through this, each seller tries to capture the market.
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| Price of banana (per dozen) in ₹ | Demand (in dozen) | Supply (in dozen) | Relation between DD and SS |
| 10 | 500 | 100 | DD > SS |
| 20 | 400 | _____ | DD > SS |
| 30 | _____ | 300 | DD = SS |
| 40 | 200 | _____ | DD < SS |
| 50 | ______ | 500 | DD < SS |
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PASSAGE
In India, markets for automobiles, cement, steel, aluminium, etc, are the examples of oligopolistic market. In all these markets, there are few firms for each particular product. Duopoly is a special case of oligopoly, in which there are exactly two sellers. Under duopoly, it is assumed that the product sold by the two firms is homogeneous and there is no substitute for it. Examples where two companies control a large proportion of a market are: (i) Pepsi and Coca-Cola in the soft drink market; (ii) Airbus and Boeing in the commercial large jet aircraft market.
Operating systems for smart phones and computers provide excellent examples of oligopolies in big tech. Apple iOS and Google Android dominate smart phone operating systems. Computer operating systems are overshadowed by Apple and Microsoft Windows.
- Give examples of oligopolistic market in India (1 mark)
- Explain the concept of duopoly with a suitable example from the passage (1 mark)
- Express your personal opinion based on the above information (2 marks)
In which one of the following types of markets are Average Revenue curve and Market Demand curve the same?
