Question 1

Q1: 1. What are the characteristics of a perfectly competitive market?

Accepted Answer

Based on the chapter, a perfectly competitive market has the following four defining features: 1.  Large number of buyers and sellers: The market consists of so many buyers and sellers that no single individual can influence the market price. Each participant is very small relative to the market siz...

Question 2

Q10: 10. Will a profit-maximising firm in a competitive market produce a positive level of output in the short run if the market price is less than the min...

Accepted Answer

No, a profit-maximising firm will not produce a positive level of output in the short run if the market price is less than the minimum of its Average Variable Cost (AVC). Explanation: In the short run, a firm has both fixed and variable costs. If the firm shuts down and produces zero output, its los...

Question 3

Q11: 11. Will a profit-maximising firm in a competitive market produce a positive level of output in the long run if the market price is less than the mini...

Accepted Answer

No, a profit-maximising firm will not produce a positive level of output in the long run if the market price is less than the minimum of its long-run Average Cost (AC). Explanation: In the long run, a firm has no fixed costs; all costs are variable. A firm must cover all its costs to stay in busines...

Question 4

Q12: 12. What is the supply curve of a firm in the short run?

Accepted Answer

The short-run supply curve of a firm is the rising part of its Short-run Marginal Cost (SMC) curve from and above the minimum point of the Average Variable Cost (AVC) curve. For any price below the minimum AVC, the firm will produce zero output. Therefore, the supply curve consists of two parts: 1....

Question 5

Q13: 13. What is the supply curve of a firm in the long run?

Accepted Answer

The long-run supply curve of a firm is the rising part of its Long-run Marginal Cost (LRMC) curve from and above the minimum point of the Long-run Average Cost (LRAC) curve. For any price below the minimum LRAC, the firm will exit the market and produce zero output. Therefore, the long-run supply cu...

Question 6

Q14: 14. How does technological progress affect the supply curve of a firm?

Accepted Answer

Technological progress allows a firm to produce a given level of output using fewer inputs, or produce more output with the same level of inputs. This improvement in efficiency lowers the firm's cost of production at every level of output. Specifically, it lowers the firm's marginal cost (MC). Since...

Question 7

Q15: 15. How does the imposition of a unit tax affect the supply curve of a firm?

Accepted Answer

A unit tax is a tax imposed by the government on each unit of output sold. This tax effectively increases the cost of production for the firm. For every unit produced, the firm's marginal cost (MC) increases by the amount of the tax. This causes the firm's MC curve to shift upward and to the left. S...

Question 8

Q16: 16. How does an increase in the price of an input affect the supply curve of a firm?

Accepted Answer

An increase in the price of an input, such as labour wages or raw material costs, raises the firm's overall cost of production. This increase in costs leads to an increase in the firm's marginal cost (MC) at any level of output. Graphically, this is represented by an upward or leftward shift of the...

Question 9

Q17: 17. How does an increase in the number of firms in a market affect the market supply curve?

Accepted Answer

The market supply curve is the horizontal summation of the supply curves of all individual firms in the market. When the number of firms in the market increases, there are more producers supplying the good at any given price. The total quantity supplied in the market at each price level will therefo...

Question 10

Q18: 18. What does the price elasticity of supply mean? How do we measure it?

Accepted Answer

The price elasticity of supply measures the degree of responsiveness of the quantity supplied of a good to a change in its market price. It indicates the percentage change in quantity supplied that occurs in response to a one percent change in price. We measure it using the following formula: Price...

Question 11

Q19: 19. Compute the total revenue, marginal revenue and average revenue schedules in the following table. Market price of each unit of the good is Rs 10....

Accepted Answer

Given the market price (P) = Rs 10.    Total Revenue (TR) is calculated as Price × Quantity Sold.    Average Revenue (AR) is calculated as TR / Quantity Sold. For a price-taking firm, AR is always equal to the price. *   Marginal Revenue (MR) is the change in TR from selling one more unit. For a pri...

Question 12

Q2: 2. How are the total revenue of a firm, market price, and the quantity sold by the firm related to each other?

Accepted Answer

The total revenue (TR) of a firm is directly related to the market price (p) and the quantity of the good sold (q). The relationship is defined by the following formula: TR = p × q This means that the total revenue is calculated by multiplying the market price per unit of the good by the total numbe...

Question 13

Q20: 20. The following table shows the total revenue and total cost schedules of a competitive firm. Calculate the profit at each output level. Determine a...

Accepted Answer

Market Price Determination: The market price (P) can be determined by dividing Total Revenue (TR) by Quantity Sold (Q) at any positive output level.  For Q = 1, P = TR / Q = 5 / 1 = Rs 5. For Q = 2, P = TR / Q = 10 / 2 = Rs 5. Thus, the market price of the good is Rs 5. Profit Calculation: Profit is...

Question 14

Q21: 21. The following table shows the total cost schedule of a competitive firm. It is given that the price of the good is Rs 10. Calculate the profit at...

Accepted Answer

Given the price (P) = Rs 10. First, we calculate Total Revenue (TR = P × Output) and then Profit (Profit = TR - TC). | Output (Q) | TC (Rs) | TR (Rs) (10 × Q) | Profit (Rs) (TR - TC) | |---|---|---|---| | 0 | 5 | 0 | -5 | | 1 | 15 | 10 | -5 | | 2 | 22 | 20 | -2 | | 3 | 27 | 30 | 3 | | 4 | 31 | 40 |...

Question 15

Q22: 22. Consider a market with two firms. The following table shows the supply schedules of the two firms: the SS₁ column gives the supply schedule of fir...

Accepted Answer

The market supply schedule is computed by taking the horizontal summation of the individual firms' supply schedules. At each price, we add the quantity supplied by firm 1 (SS₁) to the quantity supplied by firm 2 (SS₂). Market Supply (Sm) = SS₁ + SS₂ Here is the computed market supply schedule: | Pri...

Question 16

Q23: 23. Consider a market with two firms. In the following table, columns labelled as SS₁ and SS₂ give the supply schedules of firm 1 and firm 2 respectiv...

Accepted Answer

The market supply schedule is the horizontal summation of the individual supply schedules of firm 1 (SS₁) and firm 2 (SS₂). We find the total market supply at each price by adding the quantities supplied by both firms. Market Supply (Sm) = SS₁ + SS₂ Here is the computed market supply schedule: | Pri...

Question 17

Q24: 24. There are three identical firms in a market. The following table shows the supply schedule of firm 1. Compute the market supply schedule. | Price...

Accepted Answer

Since there are three identical firms in the market, the supply schedule for each firm is the same as that of firm 1 (SS₁). The market supply schedule is the sum of the quantities supplied by all three firms at each price. Therefore, we can find the market supply by multiplying the supply of firm 1...

Question 18

Q25: 25. A firm earns a revenue of Rs 50 when the market price of a good is Rs 10. The market price increases to Rs 15 and the firm now earns a revenue of...

Accepted Answer

To calculate the price elasticity of supply, we first need to find the initial and final quantities supplied. Step 1: Find the initial and final quantities.    Initial Price (P₁) = Rs 10, Initial Total Revenue (TR₁) = Rs 50     Initial Quantity (Q₁) = TR₁ / P₁ = 50 / 10 = 5 units    Final Price (P₂)...

Question 19

Q26: 26. The market price of a good changes from Rs 5 to Rs 20. As a result, the quantity supplied by a firm increases by 15 units. The price elasticity of...

Accepted Answer

We are given the following information:    Initial Price (P₁) = Rs 5    Final Price (P₂) = Rs 20    Change in Quantity (ΔQ) = 15 units    Price Elasticity of Supply (eS) = 0.5 Let the initial output be Q₁ and the final output be Q₂. We know that Q₂ = Q₁ + 15. Step 1: Use the price elasticity formula...

Question 20

Q27: 27. At the market price of Rs 10, a firm supplies 4 units of output. The market price increases to Rs 30. The price elasticity of the firm's supply is...

Accepted Answer

We are given the following information:    Initial Price (P₁) = Rs 10    Initial Quantity (Q₁) = 4 units    Final Price (P₂) = Rs 30    Price Elasticity of Supply (eS) = 1.25 We need to find the new quantity supplied (Q₂). Step 1: Use the price elasticity formula. eS = [(Q₂ - Q₁) / Q₁] / [(P₂ - P₁)...

Price (Rs)	SS₁ (kg)	SS₂ (kg)
0	0	0
1	0	0
2	0	0
3	1	0
4	2	0.5
5	3	1
6	4	1.5
7	5	2
8	6	2.5

Output	TC (Rs)
0	5
1	15
2	22
3	27
4	31
5	38
6	49
7	63
8	81
9	101
10	123

NCERT Solutions