You are on page 1of 8

# OMT EX – CLA SSES

## 1. Total Revenue:-Total Revenue refers to the gross revenue of the firm. In

other words, it is the total amount of money that a firm receives from its
sales proceeds.
It is expressed as follows:-
TR = f (Q)
Where:-
TR = Total Revenue
Q = Total amount of the goods sold during a period of time.
Thus total revenue is the function of total sales.
Total revenue can be obtained when the quantity sold is multiplied by
the market price of the product.
Thus, TR = Q X P
Where:-
Q = Quantity sold
P = Price per unit
2. Average revenue:- It refers to revenue per unit. Average revenue is equal
to total revenue divided by the number of units sold. It is expressed as
follows.
AR = TR / Q
Where:-
AR = Average revenue
TR = Total revenue
Q = Out put
3. Marginal Revenue:-Marginal revenue refers to the net addition made to
the total revenue by selling one more units. Thus it is the change in the
total revenue resulting form a unit change in the output sold. It can be
expressed as follows.
MR = TRn – TR n-1
4. Project Planning :- Project Planning involves conceding, Generating,
Evaluating & selecting the most profitable investment. It is a plan for
investment fund & these with
• Determining the worthiness of investment project
• Estimating rate of returns from these project.
• Estimating the cost of capital & availability of capital funds.
5. Perfect Competition:- A type of market where there are
large number of buyers and sellers and no buyer or seller
influences the market individually. Under perfect competition
there is free entry and exit of all the firms. There is uniform price
under perfect competition. All consumers pay the same price. It is
not realistic and it is an imaginary market.

1
OMT EX – CLA SSES
“The home of text”
OMT EX – CLA SSES
“The home of text”

## 6. Monopoly:- Monopoly is a type of market in which there is

only one seller producing a commodity having no close substitute.
Under monopoly the entry of new firms is strictly prohibited.

## 7. Price Discrimination:- Price discrimination refers to a situation

when a monopolist charges different prices from different
customers for the same commodity at the same time.
E.g. BEST charges different prices for consumption of electricity for
domestic use and commercial use.
Price discrimination is possible only under the following
conditions.
a. The seller is a monopoly firm.
b. There are 2 or more than 2 markets for the product
c. No resale possibility for monopoly product.
8. Product Differentiation: Product differentiation is the most
important feature of monopolistic competition. Since all
sellers sell the product which are perfect substitutes for each
other, they go for product differentiation. Every seller makes
efforts to show that his product is superior to other products.
Product differentiation is practiced in many forms lime
etc. Thus the products are not homogeneous under
monopolistic competition.
9. Dumping: - Dumping is a device used by the seller to promote
export and capture foreign market. It refers to the sale of goods in
foreign market at a given price which is lower than the selling price
of the same product in the domestic market.
Dumping can be practiced under the following conditions only:-
• The seller enjoy monopoly in domestic market and
• There is perfect competition in the foreign market.
• The two different market should have different elasticity of
demand.
10. Production cost:- Production cost refers to all the expenses met
by the producer in order to produce and shift it to the consumer.
Production cost helps to expand supply. It is met by all
commodities which are produced and sold.
11. Selling cost:- Selling cost refers to only that cost which is incurred to
secure demand. For e.g. expenses on demand. Advertisement,
publishing, window, display etc. Selling cost promotes demand and
thereby sales. Selling cost is met by all commodities which are sold.

## Q. Explain the relationship between price, average revenue and

marginal revenue under perfect completion and monopoly.

2
OMT EX – CLA SSES
“The home of text”
OMT EX – CLA SSES
“The home of text”

## F.Y.B .CO M E CO NOMI C

Ans.
a. Price and revenues under Perfect Competitions.
A firm can sell any amount of the product under the given
price in perfect competition. As the price is given and fixed, the
average revenue and marginal revenue become equal to price.
The following schedule explains the relationship between
price, average revenue and marginal revenue.
Units of Price TR(Rs. MR(Rs.) AR(Rs.)
commodity )
1 10 10 10 10
2 10 20 10 10
3 10 30 10 10
4 10 40 10 10
5 10 50 10 10

## Under the conditions of perfect of competition, the firm’s

average revenue and the marginal revenue curve would be one
and the same. In other words they are identical and represented
by a horizontal straight line parallel to X – axis.

## b. Price and revenues under monopoly:- As there is only one

firm under monopoly, it can adopt an independent policy and
change the price as it desires. As a result, the price does not
remain constant in monopoly. Under such circumstances,
the relationship between price and revenues would appear as
follows.
Units of Price TR(Rs. MR(Rs.) AR(Rs.)
commodity )
1 10 10 10 10
2 9 18 8 9
3 8 24 6 8
4 7 28 4 7
5 6 30 2 6
As the price goes on changing, both the average and marginal
revenues continuously fall. However the fall in MR is faster than
AR. A firm can sell more goods if it reduces the price.
Y

Price
Reve
nue

AR
MR

O X
Out Put

3
OMT EX – CLA SSES
“The home of text”
OMT EX – CLA SSES
“The home of text”

## F.Y.B .CO M E CO NOMI C

DISTINGUISH BETWEEN
Perfect Competition Monopoly
1. A type of market where there 1. Monopoly is a type of market
are large numbers of buyers in which there is only one seller
and sellers and no buyer or producing a commodity having
seller influences the market no close substitute.
individually.
2. Under perfect competition 2. Under monopoly the entry of
there is free entry and exist of new firms is strictly prohibited.
all the firms.
3. No Individual seller can 3. Under monopoly, the seller
influence the price under can determine the price and he
perfect competition. He is a is a price maker & not a price
price taker. taker.
4. A firm and in industry are 4. There is a single firm which
different under perfect acts as the industry.
competition.
5. It is hardly exists in the 5. Monopoly exists in the
market. market.
6. There is uniform price under 6. There may or may not be
perfect competition. practice uniform price by the
monopoly.
7. All the consumers pay the 7. All the consumers pay the
same price. different price.

## Perfect Competition Monopolistic Competition.

1. A type of market where there 1. There are few sellers
are large number of buyers and selling same but
sellers and no buyer or seller
influences the market differentiated product.
individually.
2. There is no product 2. Product differentiation is the
differentiation by the sellers main feature of monopolistic
competitions. Products are
differentiated on the basis of
brand name, shape, colour,
design, quantity and
workmanship.
3. Sellers are price taker and 3. Sellers are price maker,
not price maters. All buyers Different buyers pay different
follow uniform price. prices for the same product.
4. It is hardly exist in the 4. It is exist in the market.
market.

4
OMT EX – CLA SSES
“The home of text”
OMT EX – CLA SSES
“The home of text”

## Pure competition Perfect competition.

1. Pure competition is said to 1. Perfect competition is much
exist in a market having the wider than pure competition. It‘s
following features:- features are_
a. There are large number of a. There are large number of buyers
and sellers
buyers and sellers b. Homogeneous product
b. Homogeneous product c. Free entry and exist
c. Free entry and exist. d. Perfect mobility of the factors of
production.
e. Perfect knowledge about the
market
f. Absence of transport cost.
g. No government restrictions.
2. Pure competition is much 2. Perfect competition is more
simpler and less exclusive exclusive concept involving
concept than perfect many assumptions.
competition.
3. It is possible to come 3. It is difficult to come across
across pure competition in perfect competition in real
fields like agriculture. life.
4. American economists 4. English economists
attach greater importance to generally emphasis perfect
pure competition. competition.
Production cost Selling cost
1. Production cost refers to 1. Selling cost refers to only
all the expenses met by the that cost which is incurred to
producer in order to produce secure demand.
and shift it to the consumer. For. eg. Expenses on demand,
window, display etc.
2. Production cost results in 2. Selling cost results in
additional production which creation of demand. Further
creates additional utility. it does not helps to satisfy
existing demand.
3. Production cost helps to 3. Selling cost promotes
expand supply. demand thereby sales.
4. Production cost is met by 4. Selling cost is incurred by
all commodities which are only those who produce and
produced and sold. sell differentiated products.
5. Production cost is 5. Selling cost is a peculiar
universal and it is faced by feature of monopolistic
all markets including perfect competition only.
competitions.
6. Production cost influences 6. Selling cost influence the
the position and shape of position and shape of demand
supply curve curve.

5
OMT EX – CLA SSES
“The home of text”
OMT EX – CLA SSES
“The home of text”

## Features of Perfect Competition.

Perfect Competition:- A type of market where there are large
number of buyers and sellers and no buyer or seller influences the market
individually.
Features of Perfect Competition are_
1. Large number of buyers and sellers:- Perfect competition is a market
where there are large number of buyers and sellers. This feature
indicates that both the buyers and sellers do n0t have any major control
over the market and they cannot individually influence the market. Thus,
it means that quantity supplied by a single seller is so small that it does
not affect the market supply and the price of the commodity produced by
hid. Similarly, quantity demanded by a single buyer does not influence
the total demand and the price of the commodity.

## 2. Homogeneous products. A commodity produced by different producers is

exactly identical in respect of quality, size, price, etc. So a seller has no
excuse to charge a higher price for his commodity. The buyer also need
not discriminate between the sellers.

## 3. Complete Market information:- According to this feature both the buyers

and sellers must have the complete knowledge of market, regarding price,
demand and supply situations in the market.

4. Free entry and exist:- Perfect competition allows free entry and exist for
the sellers of the commodity under consideration. The sellers are free to
enter the market at any time as per their wish and they also can quit the
market whenever they want. There are no legal restrictions on the closing
down of the firm.

## 5. Perfect mobility of factors of production:-It is an important feature of the

perfectly competitive markets that all the factors of production like labor
and capital are perfectly mobile, both geographically and occupationally.
If labor and capital are move from one place to another as per the
requirement of the market they are mobile geographically. If labor and
capital move from one type of job or occupation to other type of job easily
which means they are mobile occupationally.

## 6. No transport Cost:- Perfect competition assumes that there is a absence

of transport cost. This is mainly because the seller will have no excuse of
transport cost to charge a different price.

## Features of Pure Competition.

1. Large number of buyers and sellers:- Pure competition is a market where
there are large number of buyers and sellers. This feature indicates that
both the buyers and sellers do n0t have any major control over the
market and they cannot individually influence the market. Thus, it means
that quantity supplied by a single seller is so small that it does not affect
the market supply and the price of the commodity produced by hid.
Similarly, quantity demanded by a single buyer does not influence the
total demand and the price of the commodity.

## 2. Homogeneous products. A commodity produced by different producers is

exactly identical in respect of quality, size, price, etc. So a seller has no
6
OMT EX – CLA SSES
“The home of text”
OMT EX – CLA SSES
“The home of text”

## F.Y.B .CO M E CO NOMI C

excuse to charge a higher price for his commodity. The buyer also need
not discriminate between the sellers.

## 3. Complete Market information:- According to this feature both the buyers

and sellers must have the complete knowledge of market, regarding price,
demand and supply situations in the market.

## Features of Monopoly market.

Monopoly:- Monopoly is a type of market in which there is only one seller
producing a commodity having no close substitute.
1. Single Seller:- In this type of market, there is only one seller producing a
particular commodity.
2. No substitutes:-Monopoly not only implies a single seller but it also
means a single seller producing a commodity having no close substitutes.
If the substitutes are available, there will be a competition among the
firms. Monopoly means a complete absence of competition. So under
monopoly, the commodity has no close substitutes.
3. No distinction between a firm and industry:- Since there is only one seller
of a commodity, there is only one firm producing that commodity in the
market. So there is no distinction between the concepts of industry and
firm under monopoly.
4. No free entry and exist:- In the monopoly market, there are strong
barriers to the entry of a new firm in the market. This prevents new firms
from entering the market and so there is only one firm producing that
commodity.
5. Large number of buyers:- Under monopoly there are large number of
buyers in the market who compete with one another.
6. Downward sloping demand curve:- The demand curve of the monopoly
firm slopes downward indicating that the monopolist can maximize sales
only by reducing the price.

## Features of Monopolistic Competition.

Monopolistic competition:- Monopolistic competition
refers to a market where many sellers sell similar but differentiated product to a
large number of buyers. In a monopolistic competition market, many
monopolistic firms compete with each other by producing same but
differentiated products.
For example, companies selling toothpaste products like Colgate,
Pepsodent, Close-up, etc. fall under Monopolistic competition.
1. Large number of Sellers:- In a monopolistic competition market, there
are large number of sellers. Hence no single seller can control the market
supply. Each seller follows his own course of action. In other words each
seller is independent.
2. Product differentiation:- Product differentiation is the most important
feature of monopolistic competition. Since all
sellers sell the product which are perfect substitutes for each
other, they go for product differentiation. Every seller makes
efforts to show that his product is superior to other product. This
designs, packaging, color etc. Thus the products are not homogeneous
under monopolistic competition.
3. Selling costs:- One of the unique features of monopolistic competition is
its selling cost. Selling cost is the cost incurred by the seller on sales
7
OMT EX – CLA SSES
“The home of text”
OMT EX – CLA SSES
“The home of text”

## F.Y.B .CO M E CO NOMI C

promotion activities like advertisement, salesman’s service etc. Selling
cost enables the seller to persuade buyers to buy their products than
products from other sellers.

## 4. Large number of buyers:- There are large number of buyers in a

monopolistic competition market. Thus the buyers purchase goods by
choice and not by chance.
5. Free exist and entry:- There is free entry and exist of firms under
monopolistic competition. There are no barriers for the firm to enter.
Since each firm produces a product which is little different from others,
there is no possibility of more firms entering the market.
6. Competition :- Competition under monopolistic market is more as all the
firms sell close substitutes. But the competition is in two dimensional:
1. Price Competition under which the firms were compete with each
other by reducing their products price.
2. Non-price competition under which they compete through

Features of Oligopoly.
Oligopoly :- Oligopoly is an important form of imperfect
competition. In the word Oligopoly ‘Oligo’ means few and ‘poly’ means seller.
Oligopoly therefore refers to the market structure representing few sellers or
firms.
1. Few Firms:- Oligopoly is the market in which few firms compete with
each other. The simplest model of oligopoly is duopoly. Duopoly is the
market structure when only two firms produce and supply the product.
For e.g. Coke and Pepsi.
2. Nature of the product: In an oligopoly market, all the few firms produce
an identical product. Such an oligopoly market is called Pure Oligopoly.
On the other hand, firms with product differentiation constitute
imperfect oligopoly.
3. Interdependence of Firms: In an oligopoly market, there is
Interdependence among firms. Thus the move made by one firm to
reduce price attracts reaction from other firms.
4. Complex market structure:- The oligopolistic market structure is quite
complex. Cartel is an example of collusive oligopoly. The non-collusive
oligopoly is the other form of complex market structure.
5. Selling cost:- Advertisement is an important method used by oligopolists
to gain larger share in the market. The costs incurred on advertisement
are selling costs.

8
OMT EX – CLA SSES
“The home of text”