THE DYNAMICS OF IMPERFECT MARKETS QUESTIONS AND ANSWERS GRADE 12

More in this category: « THE DYNAMICS OF PERFECT MARKETS QUESTIONS AND ANSWERS THE REASONS AND CONSEQUENCES OF MARKET FAILURES QUESTIONS AND ANSWERS GRADE 12 »
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Activity 1
Use the table below of a typical monopolist and plot the revenue curves on the same set of axes. Notice the position of the Marginal revenue curve in relation to the Demand curve.

Price  Quantity   Total revenue   Average revenue  Marginal revenue 
 -  0  0  0  0
 100  1  100  100  100
 90  2  180  90  80
 80  3  240  80  60
 70  4  280  70  40
 60  5  300  60  20
 50  6  300  50  0
 40  7  280  40  -20
 30  8  240  30  -40

act1

Activity 2
Complete the following table by filling in the missing information:

Characteristics  Perfect market  Monopolistic competition  Oligopoly  Monopoly 
  So many competitors that a singlebusiness cannot influence the market price   So few competitors that each business takes the actions of the others into account  
Market entry  Completely free  Free    
      Downward sloping  
Long-term economic profit     Positive  
Seller market power        
Control over price    Some control    Considerably more than oligopoly
Examples   Fast-food outlets   Eskom

[20]

Answer to activity 2

Characteristics  Perfect market   Monopolistic competition  Oligopoly  Monopoly 
Number of businesses  So many competitors that a single business cannot influence the market price  A very large number  So few competitors that each business takes the actions of the others into account One business 
Market entry  Completely free  Free Free to restricted Blocked
Demand curve Slopes from left to right  Downward sloping  Downward sloping Downward sloping = market demand 
Long term economic profit Normal profit Normal profit Positive  Positive 
Seller market power None, price-taker  Some A whole lot Many (price-maker)
Control over price None Few  Considerable Considerably more than oligopoly
Examples  Gold and oil Fast-food outlets Petrol and oil Eskom

[20]

Activity 3
Study the following graph and answer the questions that follow:

  1. Define the term imperfect market. (2)
  2. Motivate why the above graph indicates short-term equilibrium. (4)
  3. Which point on the graph indicates profit maximisation? (2)
  4. Calculate the economic profit. (6)
    [14]

Answers to activity 3

  1. An imperfect market occurs where the market price is not a pure
    reflection of the scarcity of that product. (2)
  2. The firm is producing where SMC = MR and is therefore in
    equilibrium in the short term. (4)
    The slope of the curves indicates a short run. 
  3. d where MR = MC (2)
  4. Income = Price (15) × Quantity (100) 
    = R1 500
    Cost = Cost (10) × Quantity (100) 
    = R1 000
    Economic profit = Income (R1 500) – Cost (R1 000)
    = R500 33 (6)
    [14]
Last modified on Tuesday, 24 August 2021 06:22
Published in Economics Grade 12 Study Guides and Notes

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