Question

Given below are two statements: one is labelled as Assertion (A) and the other is labelled as Reason (R).
Assertion (A): Monopoly is a market condition where the entire supply of commodity is controlled by a single firm.
Reason (R): The cross elasticity of pure monopoly is negative.

• A. Both (A) and (R) are correct and (R) is the correct explanation of (A)
• B. Both (A) and (R) are correct but (R) is not the correct explanation of (A)
• C. (A) is correct but (R) is not correct
• D. (A) is not correct but (R) is correct

Hint:

Cross-elasticity rules:
• Positive ($>0$): Substitutes
• Negative ($<0$): Complements
• Zero ($=0$): Monopolistic (No substitutes)

Answer 1

The Correct Option is C

Concept: A monopoly market is characterized by a single seller and no close substitutes for the product. Cross-elasticity of demand measures the responsiveness of the quantity demanded for one good to a change in the price of another good.

Step 1: Evaluate Assertion (A).
By definition, a monopoly exists when one firm is the sole producer of a product for which there are no close substitutes. Thus, that firm controls the entire supply. (A) is correct.

Step 2: Evaluate Reason (R).
In a pure monopoly, there are no close substitutes. This means the cross-elasticity of demand between the monopolist's product and any other product is zero (or very close to it), not negative. A negative cross-elasticity implies the goods are complements. (R) is incorrect.

Step 3: Conclusion.
Assertion (A) is true, but Reason (R) is false.