Market Structures – Questions and Answers

Subject Title: Economics Revision Kit

TOPIC: Market Structures

QUESTION 1
April 2022 Question Two
With the aid of appropriate diagrams, describe three properties of indifference curves. (9 marks)
With reference to the theory of consumer behaviour, highlight five assumptions of maximisation of utility. (5 marks)
Examine three applications of the concept of consumer surplus in economies.
(6 marks)
QUESTION 2
December 2021 Question Two C
State six conditions that are necessary for effective price discrimination by a monopolist.
(6 marks)
QUESTION 3
December 2021 Question Six A
Discuss five differences between monopoly and monopolistic market structures.
(10 marks)
QUESTION 4
August 2021 Question Five A and B
(a) Collusion may be a feature of an oligopolistic market.
With reference to the above statement, explain the term “collusion”. (2 marks)
(b) Collusive practices may be undermined by price wars.
Assess three benefits that might accrue to consumers as a result of price wars by firms. (6 marks)

QUESTION 5
August 2021 Question Six A
(a) (i) Explain the term “price discrimination”. (2 marks)
(ii) Using examples in each case, examine three types of price discrimination.
(9 marks)
QUESTION 6
November 2020 Question Three A
Examine three sources of monopoly power. (6 marks)

QUESTION 7
November 2020 Question Three B
With the aid of a well labeled diagram, explain the equilibrium level of a firm operating under monopolistic market structure in the long run. (6 marks)

QUESTION 8
November 2019 Question Three C
A firm operating under perfect competition observed that:
1. At a unit price of Sh.20 of product “R”, 600 units were sold.
2. At an increased price of Sh.70, the sales of product “R” decreased by 500 units.
3. The relationship between the price of product “R” and the quantity sold of product “R” is linear.
4. The total cost (TC) of product “R” is given by the function:
TC=0.9q^2 + 30q + 1,000
Where q is the quantity of product “R” produced and sold.

Required:
(i) The revenue function of product “R”. (4 marks)
(ii) The profit earned at equilibrium. (4 marks)
(iii) The equilibrium price. (2 marks)

QUESTION 9
May 2019 Question One B
(i) Distinguish between “perfect oligopoly” and “imperfect oligopoly”. (2 marks)
(ii) Describe three methods used in fixing prices under the oligopoly market structure.
(6 marks)
QUESTION 10
May 2019 Question Four A
With the aid of a well labelled diagram, explain the equilibrium level of a firm operating under an oligopolistic market structure. (5 Marks)

QUESTION 11
November 2018 Question Four B
State four advantages and four disadvantages of a monopoly market structure in an economy. (8 marks)

QUESTION 12
November 2018 Question Four D
A firm operating under a monopoly market structure has the following demand and cost functions:
P = 140 – 2Q
TC = 10 + 5Q^2

Where:
P is the price in thousands of shillings.
Q is the quantity of output in thousands of units. TC is the total cost in thousands of shillings.

Required:
The maximum level of profit of the firm. (4 marks)

QUESTION 13
November 2018 Question Five C
Using appropriate diagrams, analyse the following levels of output of a monopolist firm in the short-run period:
(i) The profit maximising level of output. (5 marks)
(ii) The loss making level of output. (5 marks)

QUESTION 14
May 2018 Question Three C
With the aid of a well labelled diagram, explain a normal profit making firm under oligopoly in the short-run. (5 marks)

QUESTION 15
May 2018 Question five C
With the help of a diagram, justify why the condition that marginal revenue equals to marginal cost (MR= MC) is only a necessary but not a sufficient condition for maximisation. (6 marks)

QUESTION 16
November 2017 Question A
Explain the following types of development plans:
(i) Short term plans. (1 mark)
(ii) Medium term plans. (1 mark)
(iii) Long term plans. (1 mark)

QUESTION 17
November 2017 Question Four A
State five advantages and five disadvantages of a perfectly competitive market structure.
(10 marks)
QUESTION 18
May 2017 Question Three E
With the aid of an appropriate diagram, explain the condition under which a firm operating under perfect competition market structure would make supernormal profits in the short-run. (5 marks)

QUESTION 19
May 2017 Question Four A
Highlight four salient features of a monopolistic competition market structure.
(4 marks)
QUESTION 20
May 2017 Question Six B
A firm operating under perfect competition has the following demand and total cost functions:
P = 25-50Q
TC = 100-15Q+ 60Q^2
Where:
P is the price in shillings.
Q is the quantity in units.
TC is the total cost.

Required:
(i) The level of output that would maximise profit. (5 marks)
(ii) The level of output that would minimise costs. (3 marks)

QUESTION 21
November 2016 Question Three A
With the aid of well labelled diagrams, discuss the short run and long run equilibrium positions of a firm operating under monopolistic competition. (12 marks)

QUESTION 22
November 2016 Question Three B
A monopolist sells his product in two distinct markets, A and B. The cost function of the monopolist is given as:
C = 100Q
Where:
C is the total cost function
Q is the total production in units

The demand functions of the two distinct markets are given as:
QA= 50-0.2PA
QB=100- 0.5 PB
Where;
QA is the demand of the product in market A.
QB is the demand of the product in market B.
PA is the price of the product in market A.
PB is the price of the product in market B.

Required:
(i) The equilibrium level of price and quantity of the product in market A. (4 marks)
(ii) The equilibrium level of price and quantity of the product in market B. (4 marks)

QUESTION 23
May 2016 Question Two B
Highlight five disadvantages of the monopoly market structure. (5 marks)

QUESTION 24
May 2016 Question Four B
Illustrate the close down price of a firm operating under perfect competition.
(6 marks)
QUESTION 25
May 2016 Question Six B
With the aid of an appropriate diagram, explain the condition under which a firm operating under oligopoly market structure would make losses in the short-run.
(6 marks)
QUESTION 26
November 2015 Question Three B
With the aid of an appropriate diagram, explain the condition under which a firm operating under oligopoly market structure would make super normal profits in the short-run. (5 marks)

QUESTION 27
September 2015 Question Two A
Highlight five features of a firm under perfect competition. (5 marks)

QUESTION 28
September 2015 Question Two B
With the aid of a diagram, show that MC=MR is just a necessary but not sufficient condition for profit maximisation. (4 marks)

QUESTION 29
September 2015 Question Two C
In the short-run, a monopolist does not necessarily have to make profits; he can make losses. Whether he makes a profit or a loss depends on the position of the short-run total cost curve (SATC) at the short-run equilibrium.
Using an appropriate diagram, discuss the conditions for the loss minimisation of a monopolist. (5 marks)

QUESTION 30
September 2015 Question Two D
Under monopolistic competitive markets the products are usually differentiated yet they are very close substitutes for one another.
Explain the main types of product differentiation in monopolistic competitive market.
(6 marks)