Which of the following factors signify monopolistic competition ? 1. Differentiated products 2. Large number of buyers and sellers 3. Barriers to entry 4. Homogeneous products Select the correct answer using the code given below:
- A.1 and 2 only
- B.1,2 and 3 only
- C.3 and 4 only
- D.2 and 4 only
Correct answer
Explanation
The correct answer is A, 1 and 2 only. Monopolistic competition is a market with many buyers and sellers, each seller offering a product that is slightly different from the others. Soaps, toothpastes, shampoos and restaurants are everyday examples: each brand is a close substitute for the rest, yet differs in name, packing, quality or taste, so each firm has a little control over its own price. Firms spend heavily on advertising and branding to stand out. Entry and exit are free, so in the long run firms earn only normal profits. The idea was developed by Edward Chamberlin in 1933. Option B is wrong because it includes barriers to entry, which mark a monopoly or oligopoly, not monopolistic competition. Option C is wrong because barriers to entry and homogeneous products both belong to other markets: barriers to monopoly and identical goods to perfect competition. Option D is wrong because homogeneous, identical products are the mark of perfect competition. Exam tip: perfect competition sells identical goods, monopolistic competition sells differentiated goods, and both have many sellers and free entry.
Practice Questions
View allThe Fourteenth Finance Commission assigned different weights to the following parameters for distribution of tax proceeds to the States :
1. Income distance
2. Population
3. Demographic changes
4. Area
Arrange the aforesaid parameters in descending order in terms of their weights.
- A.1-2-3-4
- B.1-2-4-3
- C.1-3-2-4
- D.4-3-2-1
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Income distance had the highest weight, followed by population, area and demographic change. The Fourteenth Finance Commission, chaired by Y.V.
Read the full explanation →Which one of the following statements for a firm's equilibrium in Perfect Competition is not correct ?
- A.The market price must be greater or equal to average variable cost in the short run.
- B.The market price must be equal to marginal cost.
- C.The market price must be equal to average cost in the long run.
- D.The marginal cost decreases at the equilibrium output.
Show answer
This statement is not correct, because at the equilibrium of a competitive firm marginal cost must be rising. A firm in perfect competition is a price taker, so the price it gets equals its marginal revenue.
Read the full explanation →Plan allocation in agriculture and irrigation as percentage of total plan outlay was highest in :
- A.Seventh Five-Year Plan
- B.Third Five-Year Plan
- C.First Five-Year Plan
- D.Second Five-Year Plan
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The First Plan (1951 to 1956) gave agriculture, community development and irrigation about a third of its outlay, the highest share in any Indian plan.
Read the full explanation →Which of the following is not included in the Capital Account of the Balance of Payments of a country?
- A.Foreign Direct Investment
- B.Commercial Borrowing
- C.Invisibles
- D.External Assistance
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Invisibles are part of the current account of the balance of payments, not the capital account. The balance of payments records all of a country's transactions with the rest of the world and has two main parts.
Read the full explanation →Which one among the following was the focus of the Twelfth Five-Year Plan?
- A.Sustainable and Inclusive Growth
- B.Social Justice and Equality
- C.Food, Work and Productivity
- D.Attainment of Self-reliance
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The Twelfth Five-Year Plan (2012-17) had the theme "Faster, More Inclusive and Sustainable Growth". It continued the inclusive-growth idea of the Eleventh Plan (2007-12), whose theme was "Towards Faster and More Inclusive Growth", and added sustainability as a stated goal.
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