KCSE Business Studies Topical Questions and Answers

Distinguish between oligopoly and perfect competition

19/9/2021

Oligopoly	Perfect completion
Market structure characterized by few firms	Market structure characterized by large number of buyers and sellers.

Distinguish between oligopoly and perfect competition

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Explain five features of oligopoly. (10 marks)

21/12/2020

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Explain five features of oligopoly.

Features of oligopoly include:

Firms are interdependent in decision making. Firms keenly observe each others’ actions/decision hence acting in any way triggers counter reactions (from other firm s).
Firms deal in products that are homogenous or similar. The products are close substitutes of each other and are only differentiated in terms of aspects like colour/packaging/shapes/pricing/branding.
Firms may engage in non-price competition/collusive oligopoly. The firms under oligopoly may avoid price wars hence only compete via other means like aggressive advertising/after sales services/market segmentation/fixing quotas.
Unpredictability of behaviour/uncertainty since firms under oligopoly keep reacting to market changes differently/actions taken by other firms within the market may take others by surprise.
The market is made up of a few large firms since such firms operating under oligopoly tend to have a large capital outlay/make extensive use of modem technology in their production activities/control substantial share of the market.
There are limiting factors such as large capital investment required to be a player in this market/the level of technology involved may keep off possible entrants into the market/intimidation/collusion.
Firms may engage in price wars/rivalry/cut throat competition which may lead to survival/collapse of some firms.
May lead to price rigidity/kinked demand occasioned by fear of other firms’reactions.
There may be price leadership where the dominant firm dictates the market price/rules the market.

Explain five features of oligopoly. (10 marks)

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State four basic features of a market.

21/12/2020

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State four basic features of a market.

Basic features of a market include:

Availability of buyers.
Availability of goods/services.
A platform for conducting transactions.
Availability of sellers.
Availability of medium of exchange.
Freedom to buy and sell.

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Explain five circumstances in which a firm may acquire monopoly power (10 marks)

20/12/2020

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Explain five circumstances in which a firm may acquire monopoly power

Circumstances in which a firm may acquire monopoly power include:

If the firm has the sole right to a production technique. This denies other firms the use of the technique.
If the firm has control over strategic inputs. This makes the firm to have sole access to inputs used in the production of the commodity.
If the firm is the only one with large capital required for the venture. Other firms may not be able to raise the capital leaving the field to one firm.
If the firm enjoys economies of scale. This enables the firm to produce at a lower cost than the other firms.
If the firm is set up as a parastatal and given exclusive rights of production of a particular product by the government.
If firms merge. When firms join together to form one large firm, this gives them advantage due to size.
If it is the first firm in a small market that is served by one firm more economically. New firms entering the market may make losses due to low sales hence the original firm remains dominant.
Lithe firm has patent rights/copyright which bars other firms from producing) selling the products.

Explain five circumstances in which a firm may acquire monopoly power (10 marks)

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State four features of a perfectly competitive market.

20/12/2020

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State four features of a perfectly competitive market.

Features of a perfectly competitive market include:

Large number of buyers and sellers.
The buyers and sellers have perfect knowledge of the market conditions.
No government interference in the market.
No transport costs are incurred.
Free entry and exit of firms.
There is perfect mobility of factors of production
Both buyers and sellers are prize takers.
There is perfect mobility of factors of production.

State four features of a perfectly competitive market.

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Explain five features of monopolistic competition. (10 marks)

18/12/2020

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Features of monopolistic competition

Features of monopolistic competition include:

Many sellers and buyers.
The market is comprised of many sellers and buyers who operate independently.
Free entry and exit into the market.
There are no barters to entry into, or exit from the market.
Commodities sold are very close substitutes.
Firms sell similar products but which are highly differentiated by names, shapes, colour, odour and packaging.
All firms earn normal profits in the long run.
Some firms may earn super normal profits in the short run.
Firms are independent.
There is little interdependence in terms of pricing and quantities to produce.
Entry or exit of a firm does not significantly affect the market.
None of the firms can influence the market supply by joining or leaving the industry.
No single firm has control over the factors of production.
All firms acquire the factors at the prevailing market rates and conditions.
Perfect knowledge of the market Buyers and sellers are aware of the prices, quantities and other market factors.

Explain five features of monopolistic competition

KPLC Workers at work in Kenya. KPLC is a monopoly.

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The diagram below represents the long-run equilibrium of a firm under monopolistic competition. Name the curves represented by the letters a, b, c, and d.

16/12/2020

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The diagram below represents the long-run equilibrium of a firm under monopolistic competition.Name the curves represented by the letters a, b, c, and d.

Name the curves represented by the letters a, b, c, and d.
(i) a is
(ii) b is
(iii) c is
(iv) d is

The curves represented are:

a is marginal cost curve
b is average cost curve
e is average revenue curve/demand curve
d is marginal revenue curve.

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Highlight four circumstances under which business enterprises may choose to merge

14/12/2020

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Highlight four circumstances under which business enterprises may choose to merge

Circumstances under which business enterprises may choose to merge:

Where persistent decline in profitability exits
Where there is intention to venture into new line
Where their is need to expand capital base
Where there is need to bring on board new skills/competences
Where their need to share research information
Control output
Control a wider market /increase sales
Lower the cost of production (e.g. raw materials labour etc)
Either to face emergencies /kibken
When there is too much competition
Diversification

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Country X has been experiencing an upward trend in the price of petrol as a result of a rise in inflation. State four steps that can be taken to minimize expenditure on this product.

14/12/2020

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Country X has been experiencing an upward trend in the price of petrol as a result of a rise in inflation. State four steps that can be taken to minimize expenditure on this product.

Steps that can be taken to minimize expenditure on petrol include:

Pooling people who are traveling to same direction
Use of alternative sources of energy/footing/bicycled
Encourage public service vehicles with higher carrying capacity/fuel saving engine
Encourage use of vehicle/machines with a lower engine capacity /fuel saving engine
Set maximum price legislation
Reduce tax on the product/subsidies
Improve road networks
Increase tax on complementary goods
Encourage machine maintenance
Swift off when not in use

Country X has been experiencing an upward trend in the price of petrol as a result of a rise in inflation. State four steps that can be taken to minimize expenditure on this product.

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Draw a diagram to show how equilibrium price and output are determined under- monopoly. (10mks)

12/12/2020

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Draw a diagram to show how equilibrium price and output are determined under- monopoly.

Determine determination of equilibrium price and output under monopoly.

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The following diagram represents equilibrium position of a firm under perfect competition.

11/12/2020

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The following diagram represents equilibrium position of a firm under perfect competition.

Label the parts represented by the letters a,b,c, and d

Equilibrium point/MC= MR
Marginal cost curve/ MC
Average cost curve /AC
Marginal revenue = average revenue = Price = Demand

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Explain five methods of determining the price of a product other than price control. (10 marks)

11/12/2020

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Methods of determining the price of a product other than price control

Five methods of determining the price of a product other than price control:

Bargaining/Haggling - terms of exchange is negotiated /argued/debated between buyers and sellers.
Demand and supply/price mechanism - Interactions between forces of demand and supply.
Auction - prices determined by the highest bidder.
Tendering - prices determined by the lowest bidder who meets the required specifications.
Price fixing/ retail price maintenance / recommended retail price - as producers / manufacturers / producer agree on the price of commodities.
Prices collusion - where different market players (such as sellers/buyers) conspire to fix the price.
Taxation/subsidies - which will influence the selling/buying price.
Private treaty - sale of property at a price agreed on by the seller and buyer without an intervening agency.

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Describe five characteristics of a monopolistic competitive market. (10 marks)

11/12/2020

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Characteristics of a monopolistic competitive market

Characteristics of a monopolistic competitive market.

There are many independent buyers and sellers of the commodity.
The products are close substitutes/differentiated /similar but differ by names shape/colour package! scent.
Free entry / exit - there are no barriers for new firms that require to supply the same commodity nor arc there barriers for those wishing to exit the market. Firms’ decision to enter or leave is influenced by profits or losses.
Wide knowledge of market. As buyers /sellers are aware of price/output market factors conditions.
Firms set their own prices - prices are set depending on cost incurred and demand in the market.
No single firm controls any factor of production - firms acquire factors at prevailing market prices / conditions.
Individual firms have highly elastic/gently sloping demand curve since commodities are close substitutes.
It is possible for a single/some firms to dominate/influence market price through extensive advertising/product promotion/differentiation.
All firms earn normal profits in the long run since supper normal profits attract new firms/losses make forms to leave/quit.

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Using a diagram, explain how a monopolist firm determines its output. (10 marks)

10/12/2020

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Using a diagram, explain how a monopolist firm determines its output.

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Give four assumptions that are associated with perfect competitor. (4mks)

6/12/2020

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Assumptions that are associated with perfect competitor.

Vertical Divider

Large number of seller and buyers exist in the market
Production of identical (homogeneous) products by different firms.
There is no government interference
There is free entry and exist from the industry
Uniformity of buyers and sellers

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KCSE BASED BUSINESS STUDIES Q & A

Distinguish between oligopoly and perfect competition

Oligopoly

Perfect completion

Explain five features of oligopoly. (10 marks)

Explain five features of oligopoly.

State four basic features of a market.

State four basic features of a market.

Explain five circumstances in which a firm may acquire monopoly power (10 marks)

Explain five circumstances in which a firm may acquire monopoly power

State four features of a perfectly competitive market.

State four features of a perfectly competitive market.

Explain five features of monopolistic competition. (10 marks)

Features of monopolistic competition

The diagram below represents the long-run equilibrium of a firm under monopolistic competition. Name the curves represented by the letters a, b, c, and d.

The diagram below represents the long-run equilibrium of a firm under monopolistic competition.Name the curves represented by the letters a, b, c, and d.

Highlight four circumstances under which business enterprises may choose to merge

Highlight four circumstances under which business enterprises may choose to merge

Country X has been experiencing an upward trend in the price of petrol as a result of a rise in inflation. State four steps that can be taken to minimize expenditure on this product.

Country X has been experiencing an upward trend in the price of petrol as a result of a rise in inflation. State four steps that can be taken to minimize expenditure on this product.

Draw a diagram to show how equilibrium price and output are determined under- monopoly. (10mks)

Draw a diagram to show how equilibrium price and output are determined under- monopoly.

The following diagram represents equilibrium position of a firm under perfect competition.

The following diagram represents equilibrium position of a firm under perfect competition.

Explain five methods of determining the price of a product other than price control. (10 marks)

Methods of determining the price of a product other than price control

Describe five characteristics of a monopolistic competitive market. (10 marks)

Characteristics of a monopolistic competitive market

Using a diagram, explain how a monopolist firm determines its output. (10 marks)

Using a diagram, explain how a monopolist firm determines its output.

Give four assumptions that are associated with perfect competitor. (4mks)

Assumptions that are associated with perfect competitor.

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