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S4 Economics Market Structure Practice Paper 2 | Barriers to Entry, Concentration Ratios and Shutdown Conditions – 10 Questions with Answers
S4 Economics Market Structure Practice Paper 2 | Barriers to Entry, Concentration Ratios and Shutdown Conditions – 10 Questions with Answers
The second set of ten market structure questions, from barriers to entry and shutdown conditions to concentration ratios, HHI calculations and the deadweight loss of monopoly.
Direct answers This paper has 10 questions covering barriers to entry, concentration ratios and HHI, price discrimination and the deadweight loss of monopoly; suggested time is 20 minutes.
01 Paper details (check answers afterwards)
| Item | Detail |
|---|---|
| Questions | 10 |
| Suggested time | 20 minutes |
| Difficulty mix | Foundation 3 · Intermediate 4 · Challenge 2 · Error redo 1 |
| Chapter | S4 Economics: Market Structure |
| Level | S4 (DSE) |
02 Questions (10 items)
- FoundationWhat kinds of barriers to entry are common in market structure?
- FoundationUnder what short-run condition should a perfectly competitive firm shut down?
- FoundationWhat three conditions must a firm meet to practise price discrimination successfully?
- IntermediateFive firms have market shares of 35%, 30%, 20%, 10% and 5%. What is the four-firm concentration ratio?
- IntermediateContinuing from the previous question, what is the Herfindahl-Hirschman Index (HHI)?
- IntermediateTwo firms each hold half the market. What is the HHI, and which concentration level does it represent?
- IntermediateThe government grants a franchise to operate bus routes. What type of barrier to entry is this, and what market structure does it create?
- ChallengeWhy does monopoly create deadweight loss?
- ChallengeA market has a four-firm concentration ratio of 95%. Which market structure is most likely?
- Error redoWhat is wrong with the claim that a perfectly competitive firm can set its own price?
03 Answers and one-line notes
| # | Answer | One-line note |
|---|---|---|
| 1 | Law and patents, economies of scale, control of key resources, and brand and advertising loyalty. | The higher the barrier, the longer a firm can sustain supernormal profit. |
| 2 | When price falls below average variable cost (P below AVC). | Then each unit sold fails to cover variable cost, and shutting down loses only fixed cost. |
| 3 | The market can be separated, different groups have different demand elasticities, and resale can be prevented. | If any one is missing, the low-price group will resell to the high-price group. |
| 4 | 95%. | Add only the four largest: 35 + 30 + 20 + 10. |
| 5 | 2,650. | 1,225 + 900 + 400 + 100 + 25. |
| 6 | 5,000, which is highly concentrated. | 50 squared + 50 squared = 5,000, close to the monopoly level. |
| 7 | A legal or administrative barrier, which tends to create a monopoly. | A franchise excludes other operators, leaving only one supplier in the market. |
| 8 | Output is below the socially optimal level and price exceeds marginal cost, so some mutually beneficial trades do not take place. | The loss is the units that buyers would pay more for than they cost but cannot buy. |
| 9 | An oligopoly. | A few firms hold almost the whole market and are interdependent. |
| 10 | A perfectly competitive firm is a price taker; with a homogeneous product and many buyers and sellers it can only accept the market price. | Only firms with differentiated products or monopoly power can set prices. |
04 What to do after marking
- After marking, redo only the wrong items and write down which step went wrong (formula, unit, or misread number).
- Repeat the same item two days later; move to the next paper only when both attempts are correct.
- Parents only need the answer and note columns; there is no need to explain every item.
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