And doc 98



(a) Draw graphs and explain why perfectly competitive firms’ are price takers? (2 mark)
(b) Draw graphs and explain why perfectly competitive firms make short run loss, short run economic profit, and normal profits in the long run? (5 marks)
Q2. Market structures chapter 5 (7 marks)
(a) Why a firm is called a natural monopolist? Give examples, draw a graph and
explain. (3.5 marks)
(b) Is a profit maximizing monopoly firm always technically efficient? Draw a graph and explain. (3.5 marks)
Q3. Market structures Chapter 6 (7 marks)
(a) What do you understand by the concept of interdependence of firms under oligopoly market structure? Give examples and explain. (1 ma
JA: Is there anything else important you think the Tutor should know?
Customer: (b) What assumptions concerning a rival’s responses underlie the kinked demand curve? Give example, draw a graph and explain. (2 marks)
(c) Draw graphs and explain the long run situation of monopolistic competition and perfect competition? (2 marks).
(d) In what way is monopolistic competitive firm superior and inferior to perfect competition? In other words serves the public interest. Based on the assumptions and referring to graphs from part c, explain. (2 marks)
Q4. Market Failure and Externalities Chapter 7 (7 marks)
(a) What are the three types of goods classified by Economist? List and explain
their characteristics with examples. (3 marks)
(b) The Table 1 below gives the costs and benefits of an imaginary firm operating under perfect competition whose activities create a certain amount of river pollution. (It is assumed that the costs of pollution to society can be measured).


  • Draw graphs and explain why perfectly competitive firms’ are price takers? (2 mark)

under the perfectly competitive market structure the firm cannot set the price at its own, rather it has to take price from market therefore it is known as price taker.  If the firm sets its price which is either more than or less than market, the company will be in loss as at higher price no goods may be sold as it is available in market by other firms at lower price and if the company sets the lower price than market then it will not be equal to marginal revenue and the marginal cost will be higher, therefore company will be making loss.