Class 11 Economics Chapter 15 Question Answer | Non-competitive Markets | English Medium | ASSEB
Welcome to HSLC Guru. In this article, we present a complete English-medium study guide for Class 11 Economics Chapter 15 — Non-competitive Markets, designed strictly in accordance with the ASSEB (Assam State School Education Board) syllabus. This chapter introduces market structures other than perfect competition, including Monopoly, Monopolistic Competition, and Oligopoly. You will learn the defining features of each market form, how prices and outputs are determined, the meaning of price discrimination, sources of monopoly power, the concept of product differentiation, and the kinked demand curve under oligopoly. The notes include a detailed summary, textbook questions with answers (1-mark, 2-3 mark, and 5-6 mark), additional MCQs, fill-in-the-blanks, true/false statements, and a glossary table for quick revision before examinations.
Summary
Markets are classified on the basis of the number of buyers and sellers, the nature of the product, and the conditions of entry and exit. While perfect competition represents the ideal where many sellers sell a homogeneous product, real-world markets are usually non-competitive. The three main forms of non-competitive markets are Monopoly, Monopolistic Competition, and Oligopoly. In each of these forms, the firm has some degree of control over price, unlike in perfect competition where firms are price takers. The firm in non-competitive markets faces a downward-sloping demand curve, indicating that to sell more it must lower its price.
Monopoly is a market structure where there is a single seller of a commodity which has no close substitute. The monopolist faces strong barriers to entry such as legal restrictions, patents, control over key raw materials, or high economies of scale. Because the monopolist is the only seller, the market demand curve itself is the firm’s demand curve, which slopes downward. As a result, marginal revenue (MR) is always less than average revenue (AR). Profit maximisation occurs at the level of output where MR = MC and the MC curve cuts the MR curve from below. The monopolist may charge different prices from different buyers for the same product — a practice known as price discrimination — provided the markets can be separated and resale is not possible. Sources of monopoly power include legal monopoly, natural monopoly, technological superiority, and exclusive ownership of resources.
Monopolistic Competition combines features of both monopoly and perfect competition. There are many firms, but each sells a slightly differentiated product, giving each firm a small degree of monopoly power over its own brand. Free entry and exit ensure that in the long run firms earn only normal profits. The demand curve of each firm is more elastic than that of a monopolist because close substitutes are available. Non-price competition, advertising, brand promotion, and packaging play crucial roles. Examples include the markets for soaps, toothpaste, soft drinks, and ready-made garments.
Oligopoly is a market structure dominated by a few large firms. Each firm is large enough that its price and output decisions affect the others, leading to mutual interdependence. Firms may either compete or collude. Under collusion (cartel), they fix prices or share markets jointly. The kinked demand curve model explains why prices in an oligopolistic market remain rigid: rivals follow a price cut but not a price rise, creating a “kink” at the prevailing price. Oligopolies often engage in non-price competition, such as advertising and product innovation, rather than open price wars.
Textbook Question and Answers
1-Mark Questions
Q1. What is a non-competitive market?
Answer: A non-competitive market is one in which firms have some control over the price of their product because they are not pure price takers.
Q2. Define monopoly.
Answer: Monopoly is a market structure where there is a single seller of a commodity which has no close substitute.
Q3. Why does the demand curve of a monopolist slope downward?
Answer: Because the monopolist is the only seller, the market demand curve is the firm’s demand curve, which slopes downward as price falls when more output is sold.
Q4. What is the relationship between AR and MR under monopoly?
Answer: Under monopoly, MR is always less than AR (MR < AR), and both curves slope downward.
Q5. What is price discrimination?
Answer: Price discrimination is the practice of charging different prices from different buyers for the same product by a monopolist.
Q6. Define monopolistic competition.
Answer: Monopolistic competition is a market structure with many firms selling closely related but differentiated products with free entry and exit.
Q7. What is product differentiation?
Answer: Product differentiation refers to making a product different from rival products through brand, quality, design, or packaging so that buyers prefer it.
Q8. Define oligopoly.
Answer: Oligopoly is a market structure dominated by a few large firms whose decisions are mutually interdependent.
Q9. What is a kinked demand curve?
Answer: A kinked demand curve is a demand curve under oligopoly which has a bend (kink) at the prevailing price because rivals follow price cuts but not price rises.
Q10. What is collusion in oligopoly?
Answer: Collusion is a formal or informal agreement among oligopolistic firms to fix prices or share markets to act together like a monopolist.
2 to 3-Mark Questions
Q1. Mention any three features of monopoly.
Answer: The three features of monopoly are: (i) there is only one seller of the product; (ii) the product has no close substitutes; (iii) there are strong barriers to entry of new firms, such as patents, licences, or natural barriers.
Q2. Distinguish between monopoly and perfect competition.
Answer: Under perfect competition there are many sellers selling a homogeneous product, firms are price takers, and there is free entry and exit. Under monopoly, there is a single seller with no close substitute, the firm is a price maker, and entry of new firms is blocked. Demand curve is horizontal in perfect competition but downward sloping under monopoly.
Q3. What are the conditions necessary for price discrimination?
Answer: Conditions for price discrimination are: (i) existence of monopoly power; (ii) markets must be separable so that buyers in one market cannot purchase in the other; (iii) elasticity of demand must differ between markets; (iv) resale of the product must not be possible.
Q4. Explain any three sources of monopoly power.
Answer: The three sources are: (i) Legal monopoly arising from patents, copyrights, or government licences; (ii) Natural monopoly arising when a single firm can supply the whole market at lower cost due to economies of scale; (iii) Control over essential raw materials, such as exclusive ownership of mines or natural resources.
Q5. Mention three features of monopolistic competition.
Answer: The features are: (i) Large number of sellers, each selling a small share of the market; (ii) Product differentiation in the form of brand, quality, packaging, etc.; (iii) Free entry and exit of firms in the long run, leading to normal profits.
Q6. Why is the demand curve in oligopoly kinked?
Answer: The demand curve in oligopoly is kinked because if a firm raises its price, rivals do not follow, so the firm loses many customers (demand is highly elastic). If the firm lowers its price, rivals match the cut, and the firm gains few customers (demand is less elastic). This asymmetric reaction creates a kink at the prevailing price, leading to price rigidity.
5 to 6-Mark Questions
Q1. Explain the equilibrium of a firm under monopoly.
Answer: A monopoly firm is in equilibrium when it earns the maximum profit. Since the monopolist is the only seller, the market demand curve is its average revenue (AR) curve, and it slopes downward. The marginal revenue (MR) curve also slopes downward and lies below AR. The two conditions for equilibrium are:
(i) MR = MC (Marginal Revenue equals Marginal Cost).
(ii) MC curve must cut the MR curve from below.
At the equilibrium output, the price is determined from the AR (demand) curve corresponding to that output. Since AR is greater than MR at this point, and price is set above marginal cost, the monopolist normally earns supernormal profit. Profit per unit equals AR – AC, and total profit equals (AR – AC) × Q. Unlike a perfectly competitive firm, the monopolist does not have a separate supply curve, because output and price are jointly decided by the intersection of MR and MC. The monopolist may earn supernormal profit, normal profit, or even loss in the short run, but in the long run, due to barriers to entry, supernormal profit can be sustained.
Q2. Explain the equilibrium of a firm under monopolistic competition in the short and long run.
Answer: Under monopolistic competition, each firm produces a differentiated product, so it has a downward-sloping demand curve which is more elastic than that of a monopolist. The firm aims to maximise profit by producing where MR = MC and MC cuts MR from below.
Short-run equilibrium: In the short run, the firm may earn supernormal profit (when AR > AC), normal profit (when AR = AC), or even incur losses (when AR < AC). The position depends on demand and cost conditions.
Long-run equilibrium: Due to free entry and exit, supernormal profits attract new firms, increasing supply of close substitutes and shifting each firm’s demand curve leftward until AR becomes tangent to AC. At this point AR = AC, and the firm earns only normal profit. Conversely, if firms make losses, some exit, raising demand for the remaining firms until normal profits are restored. Thus, in the long run, every firm earns only normal profit but operates with excess capacity, since it does not produce at the minimum point of its AC curve.
Q3. Explain the main features of oligopoly.
Answer: The main features of oligopoly are:
(i) Few large firms: A small number of firms dominate the market. Each has a significant share.
(ii) Mutual interdependence: Each firm’s price and output decisions affect rivals, who react in turn. Hence each firm must consider the likely reaction of others.
(iii) Barriers to entry: High capital requirements, patents, brand loyalty, and economies of scale prevent new firms from entering easily.
(iv) Nature of product: Products may be homogeneous (pure oligopoly, e.g., cement, steel) or differentiated (impure oligopoly, e.g., automobiles, mobile phones).
(v) Price rigidity: Because of the kinked demand curve, prices remain stable even when costs change.
(vi) Non-price competition: Firms rely on advertising, packaging, after-sales service, and product innovation rather than price cuts.
(vii) Possibility of collusion: Firms may form cartels to fix prices and share markets.
Q4. Distinguish between monopoly and monopolistic competition.
Answer: Differences between monopoly and monopolistic competition are:
(i) Number of sellers: Monopoly has only one seller, while monopolistic competition has many sellers.
(ii) Nature of product: Under monopoly, the product has no close substitute. Under monopolistic competition, products are close substitutes but differentiated.
(iii) Entry of firms: Entry is blocked under monopoly but free under monopolistic competition.
(iv) Demand curve: The monopolist’s demand curve is less elastic; the monopolistic competitor’s curve is more elastic due to availability of substitutes.
(v) Long-run profits: Monopolist may earn supernormal profits in the long run, but a monopolistic competitor earns only normal profits.
(vi) Selling costs: Negligible under monopoly but very important under monopolistic competition due to advertising and brand promotion.
Q5. Explain the kinked demand curve model of oligopoly.
Answer: The kinked demand curve model was developed by Paul Sweezy to explain price rigidity in oligopolistic markets. It assumes that:
(i) Each firm believes that if it raises its price, rivals will not raise theirs, so the firm will lose many customers — hence demand is highly elastic above the prevailing price.
(ii) If the firm lowers its price, rivals will follow to protect their market share, so the firm will gain only a few customers — hence demand is less elastic below the prevailing price.
This produces a demand curve with a “kink” at the prevailing price P. The corresponding marginal revenue (MR) curve has a vertical gap at the equilibrium output. Within this gap, even if marginal cost (MC) shifts up or down, the equilibrium output and price remain unchanged. This explains why oligopoly prices tend to be sticky and why firms prefer non-price competition such as advertising rather than starting price wars.
Additional Multiple Choice Questions
Q1. A market with a single seller is known as:
(a) Oligopoly
(b) Monopoly
(c) Duopoly
(d) Monopolistic competition
Answer: (b) Monopoly
Q2. Under monopoly, marginal revenue is:
(a) Equal to AR
(b) Greater than AR
(c) Less than AR
(d) Zero
Answer: (c) Less than AR
Q3. Profit is maximised when:
(a) AR = AC
(b) MR = MC
(c) TR = TC
(d) MR > MC
Answer: (b) MR = MC
Q4. Charging different prices from different buyers for the same product is called:
(a) Discrimination of cost
(b) Price discrimination
(c) Dumping
(d) Cross subsidy
Answer: (b) Price discrimination
Q5. Which of the following is an example of monopolistic competition?
(a) Indian Railways
(b) Electricity supply
(c) Toothpaste market
(d) Cement industry
Answer: (c) Toothpaste market
Q6. The kinked demand curve is associated with:
(a) Monopoly
(b) Perfect competition
(c) Monopolistic competition
(d) Oligopoly
Answer: (d) Oligopoly
Q7. Under monopolistic competition, in the long run firms earn:
(a) Supernormal profit
(b) Normal profit
(c) Loss
(d) No revenue
Answer: (b) Normal profit
Q8. A formal agreement among oligopolists is called:
(a) Cartel
(b) Trust
(c) Coalition
(d) Monopoly
Answer: (a) Cartel
Q9. Which of the following is NOT a feature of monopoly?
(a) Single seller
(b) No close substitute
(c) Free entry
(d) Price maker
Answer: (c) Free entry
Q10. Selling costs are most important under:
(a) Perfect competition
(b) Monopoly
(c) Monopolistic competition
(d) Pure competition
Answer: (c) Monopolistic competition
Fill in the Blanks
Q1. Under monopoly, there is a __________ seller.
Answer: single
Q2. The demand curve under monopoly slopes __________.
Answer: downward
Q3. Under monopolistic competition, products are __________.
Answer: differentiated
Q4. The kinked demand curve explains __________ rigidity in oligopoly.
Answer: price
Q5. Profit is maximum where MR = __________.
Answer: MC
True or False
Q1. A monopolist is a price taker.
Answer: False
Q2. Under monopolistic competition, there is free entry and exit.
Answer: True
Q3. Oligopoly markets always have homogeneous products.
Answer: False
Q4. Price discrimination requires that resale should be impossible.
Answer: True
Q5. The MR curve under monopoly lies above the AR curve.
Answer: False
Glossary
| Term | Meaning |
|---|---|
| Monopoly | Market with a single seller and no close substitute. |
| Monopolistic Competition | Market with many sellers selling differentiated products with free entry. |
| Oligopoly | Market dominated by a few large interdependent firms. |
| Duopoly | Special form of oligopoly with only two firms. |
| Barriers to Entry | Factors preventing new firms from entering a market. |
| Price Discrimination | Charging different prices for the same product to different buyers. |
| Product Differentiation | Distinguishing one product from another by brand, design, or quality. |
| Cartel | Formal agreement among firms to fix price or output. |
| Kinked Demand Curve | Demand curve in oligopoly with a bend at the prevailing price. |
| Selling Cost | Expenditure on advertising and promotion to influence demand. |
| Natural Monopoly | Monopoly arising from large economies of scale. |
| Legal Monopoly | Monopoly created by patents, copyrights, or government licence. |
| Mutual Interdependence | Each oligopolist’s decisions depend on rivals’ likely reactions. |
| Normal Profit | Minimum profit needed to keep a firm in business. |
| Supernormal Profit | Profit above the normal level when AR exceeds AC. |