Explain the ‘free entry and exit of firms’ feature of monopolistic competition.
Feature of monopolistic competition:
Free entry and exit of firms:
Free entry and exit of firms under monopolistic competition define that firms are free to enter in or exit from the industry at any time according to their wish, that there is no restriction on entry or exit of old or new firms. This implies that there are neither abnormal profits nor any abnormal losses to a firm in the long run.this feature is important as all the firms are able to earn enough profit to continue their production. But entry under monopolistic competition is not so easy and free as the situation prevails under perfect competition.
The ratio of total deposits that a commercial bank has to keep with Reserve Bank of India is called : (choose the correct alternative)
(a) Statutory liquidity ratio
(b) Deposit ratio
(c) Cash reserve ratio
(d) Legal reserve ratio
Good Y is a substitute of good X. The price of Y falls. Explain the chain of effects of this change in the market of X.
Or
Explain the chain of effects of excess supply of a good on its equilibrium price.
State different phases of the law of variable proportions on the basis of total product. Use diagram.
Or
Explain the geometric method of measuring price elasticity of supply. Use diagram.
Given below is the cost schedule of a product produced by a firm. The market price per unit of the product at all levels of output is Rs. 12. Using marginal cost and marginal revenue approach, find out the level of equilibrium output. Give reasons for your answer :
| output (units) | 1 | 2 | 3 | 4 | 5 | 6 |
| average cost (in RS) | 12 | 11 | 10 | 10 | 10.4 | 11 |
Aggregate demand can be increased by : (choose the correct alternative)
(a) increasing bank rate
(b) selling government securities by Reserve Bank of India
(c) increasing cash reserve ratio
(d) none of the above
