Time: 3 Hours
Max. Marks: 100
PART – A
1. Answer any ten of the following sub questions. Each question carries two marks: (2 x 10 = 20)
Question (a) What do you mean by a firm?
Answer: A firm is an organization which produces and supplies goods that are demanded by the people.
Question (b) Distinguish between Firm and Industry. (Nov./Dec. 2006)
Answer: Firm is a single unit engaged in production of goods and services. Industry is a group of several firms which are engaged in production of same kind of goods or services.
Question (c) What is meant by Break-Even point.
Answer: The break-even point may be defined as that level of sales in which total revenues equal total costs and net income is equal to zero.
Question (d) State the meaning of‘monopoly’.
Answer: Monopoly is that market form in which a single producer eonrtrols the whole supply of a single commodity which has no close substitutes. This sole seller in the market is called “monopolist”.
Question (e) What is ‘administered pricing’?
Answer: Administered prices are the prices of commodities fixed by the government to prevent price escalation, black-marketing and shortages in supply. The objective of administering the price of some essential commodities is to prevent any sudden rise in their prices and to ensure reasonable prices to the users.
Question (f) What is Kinked demand curve?
Answer: The term ‘kink’ refers to a short backward twist to cause obstructions. A kinked demand curve is said to occur when there is a sudden change in the slope of the demand curve. This gives rise to a kink, that is, a sharp corner in the demand curve. This arises when it is assumed that competitors will lower their prices when %, the oligopolist lowers his own price but will not raise their prices when oligopolist raises his price.
Question (g) State the meaning of product differentiation.
Answer: Product differentiation is an important characteristic of monopolistic competition. The products of various sellers are fairly similar and serve as a close substitute to each other. Product differ-entiation means that the products are different in some ways, but not totally. The differentiation is done in such a way that each one has a monopoly of his own product. For example toothpaste, brush, soap etc.
Question (h) What is super profit?
Answer: The surplus profit earned over and above the normal profit is known as super profit. In market period (i.e., very short period) the firm earns super profit. As the demand is more than supply, the prices of the commodities increases at this period.
Question (i) Give the meaning of duopoly.
Answer: Duopoly is a market with two sellers exercising control over the supply of commodities. It is a two firm industry. The action by one will have reaction from the other.
Question (j) What is full-cost pricing?
Answer: Full-cost pricing is the method of pricing adopted by manufacturers, wholesalers and retailers. Under this type of pricing, firstly the cost of goods manufactured.or purchased for resale is ascertained and then a percentage of profit is added to this to ascertain the selling price.
Question (k) What is trade cycle or Business cycle?
Answer: A business cycle refers to wave like fluctuations in aggregate economic activity particularly in national income, employment and A output. A business cycle is a very complex economic phenomenon and it is associated with alternating period of prosperity and depression.
Question (l) Give the meaning of devaluation.
Answer: Devaluation is a deliberate reduction in the external value of a country’s currency in relation to the currencies of all countries or selected countries. This is done by an official edict or announcement by the government when all other regular measures fail to correct disequilibrium in BOP.
Answer any four of the following. (4 x 5 = 20)
Question 2. State the assumption of Break even analysis.
Answer: The break even analysis is based on the following set of assumption.
- The total cost may be classified into fixed and variable cost, it ignores semi variable cost.
- The cost and revenue functions remain linear.
- The price of the product is’ assumed to be constant.
- The volume of sales and volume of production are equal.
- The fixed cost remain constant over the volume under consideration.
- It assumes constant rate of increase in variable cost.
- The price of the product is assumed to be constant.
- It assumes constant technology and no improvement in labour efficiency.
- The factor price remains unaltered.
- Charges in input prices are ruled out.
- In the case of multi product firm the product mix is stable.
Question 3. What is dumping? Is it economically advisable? Discuss.
Answer: Dumping means charging a higher price in the domestic market and a lower price in the foreign market for the same product. Under dumping, it is assumed that perfect competition exists in the foreign market, while the monopolist enjoys monopoly power in the domestic market. In other words, in the foreign market the elasticity, of demand for the monopolist’s product is elastic, but in the home market elasticity of demand for his product is inelastic.
The monopolist may resort to dumping for a variety of reasons such as to get rid of surplus production, with the intention to secure monopoly power by driving competitors away in the foreign market. Again in the absence of dumping, the output in the home market will be less. So, naturally the cost of production will also be higher Thus dumping may be used to realise economies of production, and also to develop new trade connections.
Question 4. Explain briefly about:
(a) Cost-plus pricing
(b) Target-rate pricing.
Answer: The actual pricing of products depends upon various factors and considerations. The various pricing methods adopted in ascertaining the price for a product are as follows:
(a) Full-cost pricing or cost plus pricing method:
Under this method a firm computes the price of its product by adding certain percentage to the average total cost of the product. The percentage added to costs are called as margin or mark-ups. Hence, this method is also called as margin – pricing and mark – up pricing.
Cost + Pricing = Cost + Fair profit
This method envisages to cover the total costs incurred in producing and selling a commodity. In this case business men do not seek super normal profit. Under this method, the consumers accept a price rise when costs rise. They do not feel that they are exploited. Hence, this method helps the businessmen in maintaining demand for their products. This method is considered to be more safer as it retains , stability in prices. This method is considered to be the best method for the firms producing new products because the firms can realise their normal profits under this method and it also protects them from price-wars or competition.
(b) Rate of return pricing or target pricing:
Rate of return pricing is the method of pricing, where the price is determined based on the pre-determined target rate of return on capital invested by the manufacturer. Under this method, the price is determined by the planned rate of return on investment which is expected to be converted into a percentage of the mark up. The profit margin is determined on the basis of the rate of production and the total cost of a years normal production. Then, the capital turnover is computed by taking the ratio of invested capital to the annual standard cost. Then the mark up percentage of profit is obtained by multiplying capital turnover by the goal rate of return. Percentage Mark-up = capital turnover x desired rate of return.
Question 5. What is monopolistic competition? State its features.
Answer: In the words of Left-witch, ‘Monopolistic competition is a market situation in which there are many sellers of a particular product; but the product of each seller is, in some way differentiated in the minds of consumers from the product of every other seller.”
The main features of monopolistic competition are:
(1) Large number of firms: Under monopolistic competition there are many firms producing the products, but not as many firms as in perfect competition. Each firm contributes only a small portion of the total output and has a limited control over the price of the product.
(2) Independent price policy: The firms are producing differentiated products, which are close substitutes, and as such, each determines the price taking into consideration only his cost of production and demand.
(3) Free entry and exit of firms: Each firm produces a very close substitute for the existing brands of a product. Thus, differentiation provides ample opportunity for a firm to enter with the group or industry. On the contrary, if the firm faces the problem of product obsolescence, it may be forced to go out of the industry.
(4) Element of monopoly and competition: Every firms enjoys some sort of monopoly power. But it is neither absolute nor complete because each product faces competition from rival sellers selling different brands of the product.
(5) Similar products but not identical: Under monopolistic competition, the firms produce commodities, which are similar to one another, but not identical or homogeneous. Example – toothpastes, blades, etc.
(6) Non-price competition: In this market, there will be competition among ‘ ’mini monopolists” for their products and not for the price of the product. Thus, there is ‘’product competition” rather than ‘’price – competition”.
(7) Definite preference, of the consumers: Consumers will have a definite preference for a particular variety or ‘brand loyalty’, owing to the special features of a product produced by a particular firm.
(8) Product differentiation: The most outstanding feature of monopoliStic competition is product differentiation. The producers adopt different techniques to differentiate their products from one another.
(9) Selling costs: It is also an important feature of monopo-listic competition. The expenses incurred for advertisements and other selling mediums are called selling costs. Most important form of selling cost is advertisement cost. This is undertaken by the firm in order to popularize his brand in the market.
(10) Market is characterized by imperfections Both the buyers and sellers do not have perfect knowledge of the market. As there are large no. of products, each being close substitute of the other, the consumer may not be able to choose the right product. Similarly, the seller does not know the exact preference of the buyers and hence he cannot get any added advantage out of the situation.
(11) Have more elastic demand curve Product differentiation makes the demand curve of the firm much more elastic. It implies that a slight reduction in the price of one product assuming the price of all other products remaining constant leads to a large increase in the demand for the given product.
Question 6. Bring out the features of oligopoly.
Answer: “Pollein” means to sell. Oligopoly refers to that market situation in which there are a few sellers of identical product or differentiated products.
The main characteristics of Oligopoly are:
(1) Few sellers : The important features of oligopoly situation is that the number of sellers are limited.
(2) Interdependence: Under oligopoly, a firm has to take into consideration the actions and reactions of other firms while determining the price and the level of output. The cross-elasticity of demand for their products is very high because of the availability of close substitutes. This i s the reason that no firm would like to change its existing price. Only in some abnormal cases they may dare to take independent decisions.
(3) Presence of Monopoly power: As the number of firms in oligopoly market is very small, collusion among them is possible. Under collusion, the firms act as monopoly and they may charge’higher prices for their products.
(4) Price Rigidity : In oligopoly, situation, each firm has to stick to its price. If any firm tries to reduce its price, the rival, firms will also reduce their price even further. This leads to price war which benefits none of them. Again, if any firm increases its price with an intention to increase its profits, the other rival firms will not follow the same. Hence, no firm would like to reduce the price or to increase the price. The price rigidity will take place.
(5) Huge Advertisement Expenditure: As the firms under oligopoly produce close substitutes and they are interdependent, no firm can change its price. In order to increase the sales, the firm has to spend a lot on advertisement and improve the quality of the product. Under oligopoly, the products of various firms can be differentiated effectively only by advertising.
Question 7. What are the objectives of a pricing policy?
Answer: The main aim of every business is to maximise profit, to have long survival and greater share in the market. All these objectives can be achieved through its pricing policy. Thus the main objectives of pricing policy are as follows:
(1) Maximising profit in short term : If a firm wishes to maximise its profit and make more money, it can set its price at a higher rate.
(2) Long survival: In case the company wishes to stay in the same line of business for a long time, it can resort to a pricing policy wherein it gets continuous business. Generally to attract customers and create demand for its commodity a firm may fix a lower price. In such a case, a firm is ready to forgo some portion of profit.
(3) Larger share in the market: To capture a larger share in the market, a firm may adopt a pricing policy to dominate the market. This type of pricing policy is usually adopted in oligopoly types of market structure.
(4) To avoid competition : The firms may prevent new entry through its pricing policy. For instance, a monopolist may charge low price, so that a new firm cannot charge such a low price. If at all it does, it has to face severe loss at the initial stage itself and ultimately may discontinue such business.
(5) Service oriented: If the firm’s objective is service oriented and not profit motive, it may resort to lower price in order to serve the society.
(6) Regular flow of income : In order to maintain regular flow of income, a firm may adopt a pricing policy accordingly.
(7) Growth and Expansion: A firm may set a pricing policy which facilitates fast growth and expansion of the business.
(8) To stabilise prices : By stabilising prices and profits, the firm ensures a regular flow of Income. Stable prices win customer’s confidence and increases the reputation of a firm.
PART – C
Answer any four of the following. (15 x 4 = 60)
Question 8. What is perfect competition? Illustrate with significant time element equilibrium price and output situation in perfect competition.
Answer: Perfect competition is defined as a market form where all sellers are selling homogeneous product at a uniform price. Perfect competition is said to prevail ‘when there are large number of firms producing and selling the homogenous product, the buyers and sellers know the price of the product and the firms enjoy perfect ‘ freedom whether to produce the product or not.
The role of time in determining price and output:
Prof. Marshall has introduced the concept of time element in the theory of value to show the relative influence exerted by demand and supply. Value or price of a product varies with the period of time under consideration. On the basis of time, Marshall has classified price determination under four heads.
They are as follows:
- Very short period or market period.
- Short period
- Long period
- Secular period or very long period.
(1) Market period: The market period is a very short period. During this period, the supply of a product is fixed or limited to existing stock. Thus, supply of the commodity tends to be perfectly inelastic.
As shown in the above diagram, though there is increase in demand from DD to D1 D1, since the supply being constant (vertical straight line), the price increases from OP to OP1. The quantity supplied remains the same at OM.
(2) Short period: The short period refers to that period during which the supply of the commodity can be changed to some extent though the scale of production remains un-changed. Unlike the market period supply curve, in the short period supply curve will be elastic to some extent.
It is clear from the above diagram that supply can be adjusted to certain extent when there is an increase in demand. When the demand increases from DD to D1 D1, the price also increases from OP to OP1 resulting in increase in supply from OM to OM1.
(3) Long Period: It is a period in which there is plenty of time for the firms to change the size of their plants or build new plants. New firms may also start producing this commodity by installing more modem plants. As a result of expansion of the firms, the output rises considerably. The long period supply curve will be more elastic and the supply curve will lie flat.
The long period equilibrium price is determined at the point of intersection between long period supply curve and the new demand curve. In the long period, a larger output is supplied and sold at lower prices. In the above figure it is clear that, when the demand in-creases from DD to D1D1, the price also increases from OP to OP1. But at the same time supply also increases from OM to OM1. The increase in supply is greater than the increase in price in the long run.
(4) Secular price: It refers to very long period. It includes all . those changes in demand and supply which require a very long period of time such as size of population, supply of raw materials, supply of capital, etc.
Question 9. What is Pricing Policy? Elucidate the methods of Pricing Policy.
Answer: The actual pricing of products depends upon various factors and considerations. The various pricing methods adopted in ascertaining the price of a product are as follows:
(1) Full-cost pricing or cost plus pricing method:
Under this method, a firm computes the price of its product by adding certain percentage to the average total cost of the product. The percentage added to costs are called as margin or mark-ups. Hence, this method is also called as margin-pricing and mark-up pricing.
Cost + Pricing = Cost + Fair profit.
This method envisages to cover the total costs incurred in producing and sellin g a commodity. In this case businessmen do not seek super normal profit. Under this method, the consumers accept a price rise when costs rise. They do not feel that they are exploited. Hence, this method helps the businessmen in maintaining demand for their products. This method is considered to be more safer as it retains stability in prices. This method is considered to be the best method for the firms producing new products because the firms can realise their normal profits under this method.
(2) Rate of return pricing or target pricing:
Rate of return pricing is the method of pricing, where the price is determined based on the pre-determined target rate of return on capital invested by the manufacturer. Under this method, the price is determined by the planned rate of return on investment which is expected to be converted into a percentage of the mark up.
The profit margin is determined on the basis of the rate of production and the total cost of a year’s normal production. Then, the capital turnover is computed by taking the ratio of invested capital to the annual standard cost. Then the mark up percentage of profit is obtained by multiplying capital turnover by the goal rate of return. That is, % Mark-up = Capital turnover × desired rate of return.
(3) Marginal cost pricing:
Marginal cost pricing refers to the method of determining the price on the basis of marginal or variable cost. Under this method, fixed costs are ignored and pricing is determined on the basis of marginal costs. The price so determined must cover the marginal cost and the total cost will have to be covered in the long ran.
This method of pricing permits a producer to resort to aggressive price policy than is possible under full cost pricing. This type of pricing is very much useful over the life cycle of a product. Under the conditions of change, marginal cost is the most suitable method of short run pricing. The only difficulty in marginal cost pricing is ignorance of the marginal cost techniques.
(4) Going rate pricing:
The going rate policy means, adjusting its own price policy to the general price structure in the industry. This type of pricing is opposite of full cost or cost- plus pricing. This method is adopted when it is not possible to measure costs. This type of pricing is adopted when the price leadership is very well established. This method is very easy as there is no need to ascertain cost under this type of pricing. It is also called as acceptance pricing. It is economical and avoids competition. But it is not possible to find out going rate price for new products. It is not suitable for products whose market is diminishing.
(5) Administered prices:
Administered prices are the prices of commodities fixed by the govt, to prevent price escalation,black marketing and shortage in supply. The main objective of this method is to prevent sudden rise in prices. For commodities such as cement, steel, fertilizers, etc., this type of pricing is adopted in order to stabilise the prices at a reasonable level.
This method is useful to both the consumers and the producers. It protects the interests of the weaker sections of the. society by discouraging and encouraging the consumption of certain commodities. On the other hand it helps producers by ensuring efficient allocation of scarce resources. However if any changes need to be introduced in this method, it can be done so when there is change in cost of production.
Question 10. What is monopoly? State its features. Illustrate the equilibrium Price and output determination in monopoly.
Answer: Monopoly is that market form in which a single producer controls the whole supply of a single commodity which has no close substitutes.
The features of Monopoly are –
- There will be a single seller in the market. And the buyers will be large in number.
- There is no close substitute for a product produced by monopoly and so buyers have no alternative or choice.
- There is complete absence of competition.
- Monopolist is a price-maker. He fixes the price for his product as he wishes. He may also charge different prices to different customers.
- Only one firm constitutes the industry. Therefore there is no difference between firm and industry.
- Entry of new firms restricted, either due to natural or artificial barriers.
- He can fix both price and quantity to be sold in the market.
- Super normal profits will be gained as market price is much greater than cost of production.
Price Output Determination in the short period:
Fixed factors of production remain same. Variable factors are changed to change the supply. Plant capacity cannot be changed. The volume of production can be changed only with the help of existing plants and machines.
The Monopolist can fix his price equal to, above or less than the short period average cost of the product and thus earn normal profits, super-normal profits or incur losses. He compares MR and MC. If MR exceeds MC, he can increase profit by increasing production. If MC exceeds MR, he can minimize his losses by reducing production. So the point of Price -output determination is where MR = MC.
The 3 cases of monopoly equilibrium can be shown through the following figures.
AR > AC
AR = AC
AR < AC
Price output Determination in the long run:
Supply can be adjusted to demand conditions because both fixed and variable factors can be changed. So total amount of profit in the long run depends on the cost conditions under which the monopolist operates production and the demand curve he has to face.
The demand curve slopes downwards from left to right as price gets reduced. MR is less than AR and so MR curve lies below AR curve. The monopoly firm continues operations till it reaches the equilibrium point where long run MR equals long run. MC.
In the diagram, monopoly firm reaches equilibrium at E. Here MR= MC and MC curve cuts MR curve from below. The monopolist will stop his output before AC reaches its minimum point. He restricts his output to maximize profits. OQ is the output. The price charged is OR(PQ) that is equal to AR. The total profits is NRPM. Monopoly price is generally higher than competitive price and so detrimental to the interests of the society.
Question 11. Describe the phases of a business cycle. What are the measures adopted to control their evil effects?
Answer: A business cycle refers to wave like fluctuations in aggregate economic activity particularly in national income, employment and output. A business cycle is a very complex’ economic phenomenon and it is associated with alternating period of prosperity and depression.
The various phases of a trade cycle are:
(1) Depression, contraction or downswing:
It is the first phase of a trade cycle. During this period, the level of economic activity is extremely low. There will be fall in production, increase in unemployment, falling prices, falling profits, low wages, contraction of credit by the banks and other financial institutions and a high rate of business failures.
During this phase, the capital goods industries suffer more than consumer goods industries. Prices of agricultural goods fall rapidly than industrial goods. It is a period of great suffering and hardship to the people. Thus it is the worst phase of the business cycle.
(2) Recovery or revival:
It refers to the lower turning point at which the economy under goes changes from depression to prosperity. The recovery helps to restore the confidence of the business people and create a favourable climate for business ventures. The low wages, interest rates, cost of production, recovery in marginal efficiency of capital, etc., induce the business people to under take new ventures. Repairs, renewals and replacement of plants takes place. Construction activity receives an impetus. As a result, the level of employment, output, income, wages, prices, profits, start rising.
(3) Prosperity or full employment:
Prosperity phase refers to a state where the economy attains maximum growth with full employment and the movement of the economy is beyond full employment. The period of prosperity is also called as period of expansion or upswing in the business cycle.
During the period of prosperity, an economy experiences a high level of output and trade, effective demand, high level of employment and income, marginal efficiency of capital, price inflation, rise in interest rate and large expansion in bank credit.
(4) Boom or over full employment or inflation:
Boom is a final stage of a business cycle where the business activity expands very rapidly. Economy rises to new heights. During this phase, prices, wages, interest, profit move in the upward direction. Business people borrow more and invest. There is higher output, income and employment. There is higher purchasing power and the level of effective demand will reach new heights. There is an atmosphere of “over optimism’’ all round which results in over investment. The boom carries with it the gens of its own destruction.
It is a turning point from boom condition where prosperity ends and recession begins. Recession refers to a situation where there is a decline in overall business activity. During this phase there is a fall in the level of income and output. Unemployment starts increasing. The bank credit decrease. Pessimism start prevailing among investors.
The study of various phases of business cycle is of par-mount importance to a business enterprise. It helps in demand forecasting, sales forecasting, capital budgeting, etc. The measures adopted by business firms to reduce ill effect of the business cycle can be classified into 2 categories.
- Preventive measures and
- Relief measures.
(i) Preventive measures:
Preventive measures refers to those measures which would s be adopted particularly during the period of expansion for the purpose of regulating business and to avoid unwise experience in the future.
The following are the preventive measures to be taken by the business man to avoid adverse effects during the period of expansion.
- Avoid undue increase in investment made in plant and equipments.
- Avoid decrease in production, increase in overhead costs and it should maintain steady employment throughout the year.
- The firm should not stock excess inventories
- Avoid purchase commitments in excess of financial resources.
- Avoid excessive booking of orders which results in concellation at later stages.
- Avoid borrowing on a large scale during expansion.
(ii) Relief measures:
Relief measures refer to those measures which are formulated to help in the recovery of a firm during the period of contraction.
The various relief measures which can be adopted by the business firm to overcome the evil effects during the contraction phase are:
- The business firms can reduce the cost of production.
- To improve the quality of goods and enhance their demand.
- To reduce stock of inventories
- Suitable selling method should be devised
- Profits earned in good times can be utilised for making payment during slack season.
- Innovation in the product design can.be introduced.
- The firms should give importance to and plan for its future development
- The firms can resort to launching of new business lines during slack periods.
- The management can transfer employees from one department to another where there is need for labour force.
- Also adopt cyclical pricing policy, so that it can overcome the problems faced during cyclical fluctuations.
Thus, a businessman can overcome the ill-effects during expansion and contraction phases, if he follows and adopt v correct measures.
Question 12. Explain main characteristic features of monopolistic competition.
Answer: Monopolistic competition refers to a market situation in which there are either many producers producing goods, which are close substitutes to one another, or the product is differentiated. Monopolistic competition exhibits the characteristics of both competition and monopoly. It is a market situation where a large number of small sellers sell differentiated products that are close, but not perfect substitutes for one another. The important features are individual firm can influence the market price.
- Existence of a large number of firms – The number of firms producing a product is large. No individual firm can influence the market price.
- Imperfections in the Market – This may be due to advertisements, differences in transport cost, ignorance about availability of different brands of products etc.
- Free entry and exit of firms – Each firm produces a very close substitute for existing brands of a product. So there is ample opportunity for a firm to enter the industry.
- Similar products but not identical – products are similar but not homogeneous. Example – Toothpastes, shoes, etc.
- Non-price competition – There will be competition for their products and not for the price.
- Definite preference of the consumers – Consumers will have definite preference for a particular variety of products or ‘brand loyalty’ because of the special features of a product of a particular firm.
- Element of monopoly and competition – Every firm enjoys some sort of monopoly power over the product it produces. But it is not absolute or complete because each product faces competition from rival sellers selling different brands of the product.
Question 13. What is discriminating monopoly? Discuss the methods to control monopoly power.
Answer: Discriminating Monopoly:
Price discrimination implies the act of selling the output of the same product at different prices in different markets or to different buyers. For example, if a cabinet maker charges Rs. 1000 for a cabinet to one buyer andRs. 1200 for a similar cabinet to another, he makes discrimination in price between the two buyers.
For methods to control monopoly:
Monopoly means single seller, there is no competition at all. Under monopoly type of market, the price for the product is fixed by the sole person, that is by the monopolist. In order to make more profit, he may charge an exhorbitant price as there is no control under this type of market. Sometimes he may also not take any interest in improving the quality of product. And so, there is a need for domestic measures by the government to curb such evils of monopoly. The measures taken by the government to control the power of monopoly are as follows:
(1) Encourage Competition:
In order to eliminate monopoly power the government must create and encourage the competition to compete with monopolists, so that it prevents the monopolist from fixing higher prices.
(2) Price fixation by Government:
Sometimes, government fixes standard price of the product price set by the government. This kind of government regulation is to protect the customers from exploitation by monopolist.
(3) Ownership taken over by the government:
In order to protect the interests of the customers, and eliminate the competition among the firms, the government can run the monopoly by itself.
(4) Imposing higher rate of tax:
To discourage the monopolist from charging high price, heavy taxes are levied and collected from them. So to avoid tax the monopolist may sell at lower price.
(5) Through co-operative movement:
By establishing and promoting the government co-opera- five societies, it can eliminate exploitation and can control monopoly power.
(6) Awareness programme:
By organising consumer awareness programme either by government or by consumers themselves through Buyer’s Associations, consumers can be educated regarding market conditions and can encourage competition among the firms.
(7) Legal Action:
The Government can take strict measures to prevent the emergence of monopolies. It can enact laws and enforce them properly to see that no single producer gains exclusive control over the production and marketing of any particular product or service. The government can encourage competition by punishing those producers who try to take advantage of different circumstances and resort to cut-throat competition, thus emerging as monopolies.
(8) Publicity Drive:
People should be made aware of the monopoly practices in the market and try to stop it. When people start demanding substitute products of smaller firms also, the monopoly will fall. Adverse publicity and people’s reaction against monopoly will harm the interests of the monopoly and encourage other players in the field.