IAS-MAINS

ECONOMICS (Optional)

Previous years Question Paper (Topic wise)

ADVANCED MICRO ECONOMICS

Markets Structure

1. Examine the role of price elasticity of demand in determining the price

set by a discriminating monopolist.
(2023)
2. Explain the Cournot model of duopoly using reaction functions and
interpret it as a Nash quilibrium.
(2023)
3. “Perfect competition is incompatible with increasing returns to scale.”
Examine the statement.
(2023)

4. Describe a model of oligopoly that explains price stickiness.

(2023)
5. Explain briefly Chamberlin’s concept of excess capital in monopolistic
competition.
(2022)
6. Consider a duopoly market, P= 100 - 2Q, MC = 10 and Q = 𝑞1 + 𝑞2 Where P:
Market price Q: Total output or the sum total of both firm’s output 𝑞1 & 𝑞2 : Firm
1 and Firm 2’s output respectively MC: Marginal cost Suppose Firm 1 is the
market leader and Firm 2 is the follower. Firm 1 decides its output first and then
Firm 2 and then Firm 2 takes its output decision. Find equilibrium output, price
and profit of both the firms.
(2022)
7. Do you think Firm 1 would have head the first mover advantage if it had gone for
the price adjustment? Explain your answer. (2022)

8. Explain the differences between Cournot model of duopoly with similar product
and differentiated product.
(2021)
9. What type of conjecture is involved in the existence of kinked demand curve? Do
you think that kinked demand curve model is a price determination model in an
oligopoly market? Justify your answer. (2021)

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10. What is conjectural variation? Show how some models of oligopoly are
derived on the basis of it. (2020)

11. Suppose that we have only two firms in the market with constant marginal
costs of 𝐶1 and 𝐶2 respectively such that 𝐶1 > 𝐶2 . What is the Bertrand
equilibrium in this market? How is it different from the competitive
equilibrium? (2020)

12. Two firms produce homogeneous outputs with cost functions 𝐶1 = 𝑞12 , 𝐶2 =
2𝑞22 and the inverse market demand function 𝑃 = 100 − (𝑞1 + 𝑞2 ). Show
that at the Cournot-Nash equilibrium, firm 2 makes higher profit than at
the joint profit maximizing equilibrium. Explain why this is so.
(2020)
13. Under competition, the cost function is given is as 𝑪(𝒚) = 𝒚 + 𝟏, where Y
𝟐

is output. Derive the inverse supply curve and show how the supply curve
looks like. (2019)

14. What determines the degree of price discrimination under monopoly

market? (2019)

15. What is the follower’s problem in a duopoly model and how does it differ
from the leader’s problem? (2019)

16. Tragedy of the commons” leads to over-exploitations of resources. Analyze.

(2019)

17. Reflect on the inefficiency and socially undesirable aspects of

monopolistic competition market situation vis-à-vis the perfect
competition, both in the short and in the long run. (2019)

18. Does a monopolistically competitive market lead to excess capacity under

price competition? (2018)

19. Explain some of the measures for assessing the monopoly power of a firm.
(2018)

20. Explain why in a duopoly model of collusion, each firm has an incentive to
cheat the other. (2018)

21. Show how a dominant firm with a competitive fringe can act a price leader
in an oligopoly market. (2018)

22. How do externalities lead to market failure? How can this situation be
remedied? (2018)

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23. "Under monopolistic competition a firm enjoys monopoly power without
enjoying Monopoly profit." - Explain. (2017)

24. How Chamberlin uses planned sales curve to explain equilibrium of a firm
and group when the entry of firms is permitted? (2017)

25. Derive the expansion-path for a firm operating with the Cobb-Douglas
Production Function. (2017)

26. State Bain’s limit price theory. (2016)

27. Explain kinked demand curve theory with the help of diagram. (2016)

28. Write on Prisoners’ dilemma and Nash equilibrium. (2016)

29. What is a Lemon Market? What is the role of signaling and screening in it?
Explain. (2016)

30. What is asymmetric information? How could it lead to adverse selection

and market failure? Discuss. (2016)

31. Under perfect competition in the short run, find out graphically, without
using average cost curve, the conditions in equilibrium for the existence of
(i) normal profit, (ii) supernormal profit and (iii) loss. (2015)

32. Explain how Nash equilibrium provides a solution to the problem of

strategic interdependence among firms in an oligopolistic market. (2015)

33. What do you mean by existence and uniqueness of equilibrium in a

market? Examine these concepts in a market where both demand and
supply curves are downward sloping. (2014)

34. Examine the relationship between own and cross price elasticities for a
compensated demand function. (2014)

35. “The conventional analysis of profit maximization breaks down if the

entrepreneur sells his output and possesses a production function which
is homogenous of degree one.” Explain. (2014)

36. Under Bertrand price competition with homogeneous products in an

oligopoly demonstrate how is the equilibrium price that will prevail arrived
at? (2013)

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 9Q
37. Let the market demand curve for carbonated water be given by P  20 
2
where P is the price and Q is the market output. Let there be two firms
producing carbonated water, each with a constant marginal cost of INR, 2
or c1  c2  2 .

What is the market equilibrium price and quantity when each firm behaves
as a Cournot duopolist? What are the firms’ profits?

What is the market equilibrium price and quantity when each firm behaves
as a Bertrand duopolist? What are the firms’ profits? (2013)

38. Suppose an industry is characterized by the following three conditions:

(i) there are a large number of small firms, each producing a

differentiated product and facing a downward sloping demand curve;

(ii) each firm ignores the effects of it’s action on the decisions taken by
other firms; and

(iii) new firms producing close substitutes for the product of the existing
firms can enter the industry. Then derive the equilibrium conditions of
an individual firm and of the industry. (2013)

39. Show how price output decision is taken by duopolists, taking into
account, their mutual reaction. Under what condition will the duopolistic
market be in equilibrium? (2012)

40. “If firms produce differentiated products it is neither possible to identify

the industry nor possible to draw its supply curve.” Discuss and show how
Chamberlin handles the problem. (2012)

41. What is prisoner’s dilemma? How is it related to a strictly dominant

industry? (2012)

42. The ‘Non-rival nature’ of social goods consumption has important bearing
on efficient resource allocation. Explore the problem with the examples
and diagrams (2011)

43. A Supply curve is not used to determine the equilibrium price and quantity
in a market under monopoly because

(i) a supply curve derived by using relevant cost curves in a market

under monopoly may give more than one price for different
quantities and also more than one quantity for the same price’ and

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 (ii) for determining profit maximizing price and quantity of a
monopolist, supply curve is not necessary. Explain (i) and (ii) above
with graphical illustration. (2010)

44. What are the ways in which a perfectly competitive market may become
imperfect? Examine whether advertisement helps as imperfectly
competitive market become a perfectly competitive one. (2010)

45. Demand for light bulbs can be characterized by Q = 100 – P, where Q is

millions of boxes of lights sold and P is the price per box. There are two
producers of lights having identical cost functions:

1
Ci  10Qi  Qi2 (i = 1, 2)
2
2
Q   Qi  Q1  Q 2
i 1

(a) Unable to recognize the potential for collusion, managers of the two
firms act as short-run perfect competitors. What are the equilibrium
values of Q1 , Q2 and P? What are each firm’s profits?

(b) Manager of each firm independently recognizes the oligopolistic

nature of light bulbs industry and plays Cournot. What are the
equilibrium values of Q1 , Q2 and P? What are each firm’s profits?

(c) Suppose Firm I guesses correctly that Firm II has Cournot

conjectural variation, so it plays Stakelberg. What are the
equilibrium values of Q1 , Q2 and P? What are each firm’s profits?

(d) If the managers of two firms collude, what are the equilibrium values
of Q1 , Q2 and P? What are each firm’s profits? (2009)

46. “ A dominant firm acts as a price leader and other firms adjust their
outputs accordingly.” Comment. (2009)

47. “The prevalence of excess capacity is the direct consequence of the

existence of mono-polistic competition”. Elaborate the given statement.
(2008)
48. With the help of suitable diagrams, elaborate Cornet model. What is the
significance of reaction curves in the model? (2007)
49. What is meant by oligopoly? In what respects is it different from other
forms of market? Show that an oligopolist may face a kinked demand
curve. (2005)
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50. Oligopoly firms often have a strong desire for stability, particularly with
respect of prices’. Illustrate the statement with the help of examples
generally found in the market. (2003)

51. ‘A monopolist can either decide the output of his product or the price of
the product but not both.’ Explain and illustrate. (2002)

52. Explain oligopoly. Does the Sweezy’s kinked demand curve solution offer
a satisfactory explanation of price-output decisions under oligopoly?
(2001)
53. What are the competitive and what are the monopolistic elements in
monopolistic competition? Explain fully. (2000)
54. Illustrate Kinky demand curve and bring out its implication for pricing
under conditions of oligopoly. (1999)
55. Perfect competition may be myth but competitions is a reality in every type
of market. Discuss this statement. (1998)

56. what is pure competition? How does it differ from perfect competition?
(1997)
57. Differentiate between imperfect competition and monopolistic
competition. Explain the role of selling costs under monopolistic
competition. (1997)

58. Explain why the price in competitive markets settles down at the
intersection of demand and supply curves. “ A very good harvest tends to
lower the income of farmers.” Illustrate this proposition using a supply
demand diagram. (1996)

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