Question no:1 Dhaka Board'22

A. What is a perfectly competitive market?

B. 'Firms and industries are identical in a monopolistic market' - explain.

C.. Determine the amount of profit at point E.

D. If M is the lowest point of line AC, analyze the equilibrium position of the firm.

Answer to Question No. 1

(A.) A market in which there is perfect competition between numerous buyers and sellers is
called a perfectly competitive market.

(B). A single organization producing homogeneous goods and services in an economy is called
a firm.

We know industry as a group of all the production establishments or firms engaged in the
production of a homogeneous product or service. In a monopolistic market, a single firm or
manufacturing industry controls the entire supply of the product. Moreover, there are no close
substitutes for the product produced in this market. So it can be said , of the product produced
by a single firm

Firms and industries are identical in this market because they control all supply.

(C) At point E on the diagram the firm will earn normal profit.

For the firm to achieve equilibrium in a perfectly competitive market, two conditions must be
met.
First, the firm's marginal revenue in equilibrium will be MC = MR. Second, at the equilibrium
point the slope of the MC line will be > the slope of the MR line.
Besides, the additional condition P = AC is satisfied in case of normal profit.

MC MR and slope of MC line > slope of MR line at point E in diagram. At point E both conditions
of equilibrium are satisfied. That is, E point is the equilibrium point. At the equilibrium point P =
AC is normal profit
Additional conditions are also observed. Here, price (P) = OP, quantity Q = OQ, average cost
(AC) = OP0. Therefore, TR = Price (P) × Quantity (Q) = OQ X OC = OPEQ, and TC = Average
Cost (AC) × Quantity (Q) = OPOOQ = OPEQ0. So, profit, = TR-TC = OPEQo- OPEQ = 0. Here
the amount of profit is zero but the normal profit has been earned. Because the production cost
includes the organizer's remuneration

(D). If the lowest point of the AC line is M, then the firm is making a loss.
In the short run, in equilibrium the firm has to face losses even if it earns normal and abnormal
profits. That is, there is no guarantee that the firm will earn positive profits in equilibrium in the
short run under perfect competition. In this case the firm has to accept the loss and still operate
the production.

In the diagram, the line AC passes through the point M and becomes AC₁

The average cost in this is OP, increasing from OP. is In this case the average cost OP₁, is
greater than OPo Equilibrium price, In this situation the firm's output (Q) = OQo, price (P) =
OPo, and average cost OP₁.
Total revenue, TR = OQo × OPo = OPoEQo Total expenditure, TC = OQo x OP₁ = OP,MQo.
Hence, profit, = TR - TC = OPoEQo OP,MQo = PoP,ME. That is, the firm's loss is PoP,ME. In
such case the average variable cost (AVC) of the firm is less than the average revenue. Then
the firm will accept the loss and continue production. And if AVC is greater than the firm's
average revenue, the firm will stop production.

Question 2: Dhaka Board 2022.

'X' and 'Y' are two products. There is only one seller in the market for product 'X'. On the other
hand, there are numerous buyers and sellers in the market for product 'Y' and competitors in the
production of homogeneous products have free entry and exit.

A. What is equilibrium?

B. Why is AR = MR in perfectly competitive market?

C. What type of market is the market for product 'X'? explain

D. Write the difference between the two types of markets mentioned in stem..
Answer to Question No. 2:

(A). Equilibrium refers to the attainment of a steady state through the interplay of interrelated
variables.

(B). AR = MR because product prices are constant in a perfectly competitive market.

In a perfectly competitive market, it is not possible for any buyer to shift the position of the
market demand curve for the product. Again it is not possible for a seller to influence the product
market supply line. Commodity prices are determined by market demand and market supply
curves. No buyer or seller can change this price. Hence, in a perfectly competitive market,
average revenue (AR) and marginal revenue (MR) are equal to each other as the product price
is constant.

(C). The market for product 'X' of stem is a monopolistic market. A market where there are many
buyers and only one seller or producer is called a monopolistic market. Usually, in this market, a
single seller or producer controls the price and supply of the product as per his wish. As a result,
the seller or producer in this market often makes abnormal gains. There are no substitutes in
this market. In the stem there are only one seller in the market for product 'X'.There are no
substitutes or substitutes for product 'X', so the seller can earn higher profit.The characteristics
of product ‘X’ matches with the characteristics of Monopoly market. So it can be said that 'X'
product market is a monopolistic market.

(D). According to stem, the market for product 'X' is a monopolistic market whereas the market
for product 'Y' is a perfectly competitive market.

In a monopolistic market there is only one producer or seller and there are no close substitutes
for the product. On the other hand, in a perfectly competitive market, a large number of buyers
and sellers buy and sell a homogeneous product at the same price.

The supplier of product 'X' is only one. Hence the market for product 'X' is a monopolistic
market. On the other hand, there are many buyers and sellers in the market for product 'Y', so
products are bought and sold at the same price. Hence the market for product 'Y' is a perfectly
competitive market. A monopoly consists of an industry with only one firm. On the other hand,
perfectly competitive industries consist of many firms engaged in the production of
homogeneous products.

In a monopolistic market, output is low because sellers control price and supply. On the other
hand, production is high because there are many firms in a perfectly competitive market. Buyers
and sellers do not have full understanding of monopoly market conditions. But in perfect
competition, buyers and sellers have complete understanding of market conditions. In a
monopolistic market the firm reaches equilibrium before reaching the lowest point of its LAC
(long-run average cost) line, so the firm remains inefficient. Conversely, in perfect competition all
firms produce at the lowest point of their LAC line, which indicates the firm's desired production
capacity.

Question 3: Mymensingh Board 2022.

Mr. Rahim has been living in 'K' town for two decades. In the beginning, he found that the only
flower shop in town sold a lot of flowers and the profit margin was attractive. With the change of
time, many flower shops have been established in the city and now customers can buy flowers
from any shop at a fixed price.

A. What is the market?

B. Why is the firm's demand curve parallel to the horizontal axis in a perfectly competitive
market?

C. Identify the type of flower market that existed in town 'K' two decades ago and discuss the
characteristics of that market.

D. Compare the current and past markets of flowers in 'K' city mentioned in Uddeep. 8

Answer to Question No. 3

(A)
Market in economy refers to a specific commodity, which is bought and sold at a fixed price
through direct or indirect negotiation between buyers and sellers.

(B)
In a perfectly competitive market the demand curve is parallel to the horizontal axis as the price
of the product is constant.

The price is determined by balancing the market demand and market supply of a particular
product in an industry or market. When a new firm enters the market, it also accepts the
prevailing market price. Because the firm is so small compared to the market as a whole that it
cannot affect market prices by its production decisions. As a result, the same price prevails
everywhere in the market. The price remains constant even if the quantity of production
increases or decreases. Hence in a perfectly competitive market the firm's demand curve is
parallel to the land axis.

(C)
The market that existed two decades ago in ‘K’ market is monopolistic market.
One of the characteristics of a monopolistic market is that there will be only one seller but many
buyers. There will be no substitute for the product. As a result, buyers are forced to buy goods
from a seller. At this opportunity the seller increases the price of the product. Here the buyers do
not have complete knowledge about the market.
Mr. Rahim has been living in 'K' town for two decades and initially he noticed only one flower
shop in the town A. The shop used to sell a lot of flowers and earn more profit by charging the
desired price for the flowers. Which indicates the characteristics of monopoly market. Even if
someone else wants to enter this market, there are obstacles. As a result, monopoly power is
maintained. The seller in this market earns profit by controlling the supply as per his wish.

(D).
'K' refers to the current market for city flowers being perfectly competitive and the past market to
be a monopolistic market. In a monopolistic market there is only one producer or seller and
there are no close substitutes for the product. On the other hand, in a perfectly competitive
market, a large number of buyers and sellers buy and sell a homogeneous product at the same
price.

There was a single seller in the flower market of 'K' town two decades ago. The seller would
gain more profit by influencing the price of the product. So the flower market in 'K' town two
decades ago refers to the monopolistic market. On the other hand, there are many flower shops
in 'K' town now. As a result, customers can purchase any flower at a fixed price. So at present
flower market in 'K' city indicates fully competitive market.

Monopolistic market conditions are not fully understood by buyers and sellers. But in perfect
competition, buyers and sellers have perfect understanding of market conditions. Factors of
production are not dynamic in a monopolistic market. So entry of new competitors is blocked.
On the other hand, market instruments in perfect competition are fully dynamic. Therefore, there
is no barrier to entry of new competing firms into the market. Moreover, the monopolistic firm
reaches equilibrium before reaching the lowest point on its LAC line, leaving the firm inefficient.
In contrast, perfect competition: all firms produce at the lowest point of their LAC line, which
indicates the firm's desired production capacity.

Question 4 Mymensingh Board’22.

Look at the diagram and answer the corresponding questions:

A. What is an oligopoly market?

B. "Firms and industries are identical in a monopolistic market"- Explain.

C. Determine the amount of profit/loss from the figure.

D. To continue the firm's production at point 'n' in the diagram

Analyze the rationale.

Answer to question no.4:

(A).
A market in which a handful of sellers sell a homogeneous or differentiated product is called an
oligopoly market.

(B).
A single organization producing homogeneous goods and services in an economy is called a
firm.

We know industry as a group of all the production establishments or firms engaged in the
production of a homogeneous product or service. In a monopolistic market, a single firm or
manufacturing industry controls the entire supply of the product. Moreover, there are no close
substitutes for the product produced in this market. So it can be said , of the product produced
by a single firm

Firms and industries are identical in this market because they control all supply.

(C).
The firm suffered losses in the image of that stimulus.

For the firm to achieve equilibrium in a perfectly competitive market, two conditions must be
met.
First, the firm's marginal revenue in equilibrium will be MC = MR.
Second-hand , at the equilibrium point the slope of the MC line will be > the slope of the MR
line.
Besides, the additional condition P = AC is satisfied in case of normal profit.
Also, in equilibrium, if average cost (AC) is greater than price (P) or average revenue (AR), the
firm will incur a loss. At the point in the figure the slope of the line MC=MR and MC is greater
than the slope of the line MR. That is, both conditions of equilibrium are satisfied at the point.
This point is the equilibrium point. At the equilibrium point P = AR = 20 and AC = 25. That is,
because average cost is greater than price or average revenue, the firm suffers a loss. In this
case, the firm's total revenue
(TR)= price(P) ×quantity(Q)
=20x10= 200 and
total cost (TC) = average cost (AC) × quantity (Q) =25x10 =250

amount of loss is TC-TR= 250-200=50 i.e. the firm suffered a loss of Rs.50.

(D).
At the point n, in the diagram the firm will continue to produce even though it is making a loss.
Firms in perfectly competitive markets experience both normal and abnormal profits as well as
losses. In this case, if the firm continues without stopping the production, the amount of loss
may be less or more. If the loss of the firm is less then the production will continue. Otherwise
the firm will stop production. An additional condition must be met by the firm in order to continue
production. That is, AC > P>AVC must be. Necessary and sufficient conditions for equilibrium
are observed at points in the stimulus image

has been Also, the additional AC > P > to continue producing at the firm

AVC conditions are also met. In this case, if the firm does not produce in the short term

mn = 10 × 10 = 100 fixed cost (TFC) to be incurred. That is, the loss is Rs 100 if not produced.
But if P = Rs 20 is produced then the firm's loss is em = 5 × 10 = Rs 50. In equilibrium, the firm
will accept the loss and continue to produce. Because in this case the firm's total revenue is a
part of the total fixed cost if the production is continued. And if the firm stops production then it
incurs a fixed cost of Rs.100. That is, if the firm stops production, the loss is less than if it
produces. That is, in the short run, when P > AVC, the firm will continue to produce despite
incurring losses.

Question 5: Rajshahi Board'22

A. What is the market in economics?

B. Write two differences between firm and industry.

C. Calculate the firm's profit/loss according to graph.

D. Will the firm continue to produce in the short run at stimulus equilibrium? Give reasons for
your opinion.

Answer to Question No. 5

(A).
The buying and selling of goods through the negotiation of buyers and sellers at a fixed price is
called market in economics.

(B).
Firm and industry are not one and the same.

A single organization producing a homogeneous product or service is called a firm. On the other
hand, the aggregate of all firms engaged in the production of goods and services is called an
industry. The firm is generally run by the same management. But the industry is managed
differently.

(C).
The profit or loss of the firm can be determined from the product price and average cost.

First, the firm's marginal revenue in equilibrium will be MC = MR.

Second-hand , at the equilibrium point the slope of the MC line will be > the slope of the MR
line.
Besides, the additional condition P = AC is satisfied in case of normal profit.
Also, in equilibrium, if average cost (AC) is greater than price (P) or average revenue (AR), the
firm will incur a loss.

At point 'E' in the incentive diagram the firm's MR = MC and the slope of the MC line > the slope
of the MR line. That is, at point E the equilibrium of the firm is achieved. At this point the firm's
equilibrium output is 4. Unit, price is 20 and average cost is 25. So, of the firm

Profit = Total Revenue – Total Expenses

=P xQ - AC x Q

= ২০ x ৪ - ২৫ × ৪
= - 20 [i.e. loss incurred.]
Hence, the firm's loss is 20 units.

(D).
In the equilibrium of incentives, the firm will accept the loss in the short run and continue
producing.

Firms never make normal profits in the short run in a perfectly competitive market,
Sometimes it continues production accepting excess profit and sometimes loss. A loss occurs
when average cost is less than the firm's average revenue or price. But if the price is higher
than the firm's average variable cost, the loss is reduced if the firm accepts the loss and
continues to produce. Equilibrium of the firm is achieved at point 'E'. At this point the firm's
average cost is 25, average variable cost is 15. So, average fixed cost is 25 - 15 = 10. On the
other hand, average income or price is 20.

Therefore, firm's loss = total cost total revenue

= 25 × 4 20 x 4 = 20 But loss to the firm if production stops

= average fixed cost × total output

= ১০ × ৪ = ৪০

So, in this situation the firm will continue to produce.

If average cost is greater than price in the short run, the firm incurs a loss. In this case the
production decision is made with respect to the firm's average variable cost. If the firm's average
variable cost is lower than the price, the firm can increase part of the average fixed cost if the
firm continues to produce. But if production ceases, the firm bears all of the average fixed costs.
For example, if the stimulus is stopped, the loss is 40 units. But if the production continues, the
loss amount is 20 units. That is, if the firm accepts the loss and continues production in the short
run, the amount of loss is less. So the firm will accept the loss and continue production.

Question 6 Dinajpur Board’22.

A. What is the firm?

B. Why are firms called 'price takers' in perfectly competitive markets?

C. Calculate the amount of profit from the figure.

D. Will there be any change in profit if the stimulus is moved along the AC line and located at
G-point? Analyze with the help of diagram.

Answer to question no.6

(A).
A single organization that produces goods or services is called a firm.

(B).
In a perfectly competitive market the firm accepts the fixed price and conducts production...

A perfectly competitive market is a market where numerous buyers and sellers bargain to buy
and sell a product. As there are numerous buyers and sellers in this market, no single person
can influence the price of the commodity. Rather, all firms accept the price negotiated between
buyers and sellers. Hence the firm is called a price taker in a perfectly competitive market.

C.
A firm's profit margin can be calculated from average cost and product price.

Profit of the firm is obtained by subtracting the total expenses from the total revenue of the firm.
That is, firm's profit = total revenue total expenditure. In this case the total revenue of the firm is
more than the total cost. The firm's total revenue is the product of price and quantity. And total
cost is the product of average cost and quantity. At point 'E' in the incentive diagram the firm's
MR = MC and the slope of the MC line > the slope of the MR line. Hence the firm's equilibrium is
achieved at point 'E'. At this point the firm's equilibrium output is Q, price P₁ and average cost
Po.

Hence, firm's profit = total revenue – total expenditure

=PxQ - ACxQ
=OP₁GQ - OPoFQ = PoP₁GF

Hence, the firm's profit margin is PoP₁GF.

(D).
If the line AC shifts to point G then the firm will earn normal profit.

If the line AC lies above AR in equilibrium, the firm incurs a loss. And if the line AC intersects the
line AR Staying then earns extraordinary profits. And if it touches the AR line, normal profit will
be earned. In the equilibrium diagram of the stimulus, the line AC and the point located will
touch the line AR. Then P = AC. Hence the firm will earn normal profit.
In the figure, production is indicated on the horizontal axis and income, expenditure and price on
the vertical axis. Equilibrium is achieved at point E as two conditions of equilibrium are satisfied
at point E in Fig.
In this case, total revenue (TR) of the firm = OP₁ × OQo = OP₁GQo

And, total cost (TC) = OP₁ × OQo = OP₁GQo

So, profit = OP₁GQo -OP₁GQo =0

Therefore, the firm's normal profit is when line AC lies at point G

Question 8 Dinajpur Board 2022.

The information regarding firm 'A' is given in the figure below-

A. What is the market?

B. Firms and industries in a monopolistic market are identical-explain.

C. Determine the equilibrium point according to the stimulus, with proper reasoning.

D. According to stem,determine abnormal profit by drawing the required average cost curve.

Answer to question no.8

(A)
The buying and selling of a product at a fixed price in the negotiation between the buyer and the
seller is called market.

(B)
A single organization producing homogeneous goods and services in an economy is called a
firm.

We know industry as a group of all the production establishments or firms engaged in the
production of a homogeneous product or service. In a monopolistic market, a single firm or
manufacturing industry controls the entire supply of the product. Moreover, there are no close
substitutes for the product produced in this market. So it can be said , of the product produced
by a single firm

Firms and industries are identical in this market because they control all supply.

(C)
The firm stabilizes at the equilibrium point in terms of production. Two conditions must
be met for the firm to achieve equilibrium. Namely (1) the firm's marginal revenue (MR)
and marginal cost (MC) will be equal. (2) The slope of the marginal cost curve will be
greater than the slope of the marginal revenue curve. If either condition is not met, the
firm will not achieve equilibrium. Given the marginal revenue (MR) curve and the
short-run marginal cost curve (SMC) of firm 'A'. At this point the marginal revenue of the
firm and marginal cost is equal. But the slope of the MC line is not greater than the slope
of the MR line. So it is not an equilibrium point. But at point b the firm's MR and MC are
equal. At the same time the slope of the MC line is greater than the slope of the MR line.
That is, both conditions of equilibrium are satisfied. So point b is the equilibrium point of
stem.

(D).
Abnormal profits are earned when the average cost line lies below the average revenue line.

The position of the firm's average cost curve in the short run is sometimes normal

Profits sometimes earn extraordinary profits. In equilibrium the firm earns abnormal profit when
its average cost is less than price. So the average cost curve lies below the price curve. Again if
the average cost line equals the price the firm earns normal profit.
Incentives are given the marginal revenue and average revenue and short-run marginal cost
lines of firm 'A'. The firm has attained equilibrium at point 'F'. The average cost curve required to
achieve abnormal profit is drawn as-

As both equilibrium conditions are met at point b in Figure, the firm has reached equilibrium at
the upper point. In equilibrium the firm's average cost is OP, and price OP, quantity. Total profit
of the firm at Qo quantity output level = total revenue total cost

= price - quantity average cost quantity

= OPo × OQo - OP₁ × OQo

= OPoEQo - OP₁FQo = P₁PoEF

That is, abnormal profits have been earned

Hence, the region P₁PoEF is the region of abnormal profit. Since the average cost of the firm is
less than the price, the firm earns that area as surplus.

Question No.9 Comilla Board 2022.

The short run equilibrium of a firm is shown in the diagram below-
A. What is the market?

B. 'Firms in perfect competition are called price takers' - explain.

C. Determine the amount of profit according to the graph.

D. If the average cost increases by 150 at the production level of 100 units, what will be the
effect on the equilibrium of the firm – Analyze.

Answer to Question No. 9

(A).
The buying and selling of a commodity at a fixed price by negotiation between buyer and seller
is called market.

(B).
In a perfectly competitive market, the firm accepts the fixed price and conducts production.

A perfectly competitive market is a market where numerous buyers and sellers bargain to buy
and sell a product. As there are numerous buyers and sellers in this market, no single person
can influence the price of the commodity. Rather, all firms accept the price set in the buyer-seller
negotiation. Hence the firm is called a price taker in a perfectly competitive market.

(C).
In the figure shown in the diagram, the firm's equilibrium position is shown to earn abnormal
profits.

For the firm to achieve equilibrium in a perfectly competitive market, two conditions must be
met. First, in a perfectly competitive market in equilibrium the firm's marginal revenue (MR) and
marginal cost (MC) will be equal. Second, the slope of the MC line is greater than the slope of
the MR line.

In the figure, the firm's marginal cost (MC) line intersects the marginal revenue (MR) line
downwards at point E. Hence at point E, MR = MC and the slope of the MC line is greater than
the slope of the MR line. So the firm attains equilibrium at point E. In this situation equilibrium
price and quantity are 100 and 100 units respectively. The firm's average cost per 100 units of
this equilibrium quantity is 50.
In this case,
Firm's total revenue (TR) = price × output
=100 × 100 =10,000
Expenditure is the volume of production
Total Cost (TC) = Avg
= 100 × 50=5000
Profit (n) = TR-TC
=10,000 - 5,000 = 5,000

Hence, as TR > TC the firm has earned abnormal profit.

(D).
150 by increasing average cost per 100 unit output level of the stimulus

The organization will face loss if Rs. A firm incurs a loss if average cost (AC) is greater than
price (P) or average revenue (AR) in a perfectly competitive market in the short run. In this case,
if AC > P > AVC, i.e. price is greater than average variable cost (AVC), the firm will continue to
produce even at a loss.

MC

AC

P, R, C

150

Price, income, expenditure.

100

AND

AC

P=AR-MR

'50

F
0

100 150 Production Qty

50

Figure: Firm admits loss

As can be seen in the figure, if the average cost line is AC instead of AC, the firm's average cost
of producing 100 units is Rs.150. So in this case total revenue of the firm (TR) = price × output

= 100 x 100 = 10,000

Total Cost (TC) = Average Cost

.'

Production volume

150×100=15,000

. Loss = TC-TR15,000-10,000 = 5000

That means the firm will face a loss of Rs.5000. So, if the firm increases its average cost by 150
rupees per unit production level of Uddeep. 5000 will suffer a loss of Rs.