HKDSE Economics | Market Structure Tutor Prep Guide | Perfect competition, monopoly pricing and deadweight loss

2026-11-01

Tutor lesson-prep guides · Secondary Economics

Students can chant that a monopoly raises price and cuts output, then confuse MR with the demand curve the moment numbers appear, so they set P equal to MC. This lesson locks in one sequence: write MR, intersect with MC, and only then read price off demand.

Objectives — Students can: (1) classify the four market structures using clear criteria; (2) derive MR from a demand curve and find monopoly output from MR = MC; (3) read the price off demand and compute profit; (4) compare output, price and efficiency between competition and monopoly.

01 Prerequisites (3-minute check)

If any of these fails, fix it before the lesson starts.

Skill	Quick check	Pass mark
Demand curve	Relationship between price and quantity	Downward sloping
Marginal thinking	Meaning of marginal revenue	Extra revenue from one more unit
Area of a triangle	Base times height over two	half b h

02 Lesson flow (60 minutes)

Time	Stage	Tutor does	Student does
0-10 min	Four structures	Competition and barriers to entry	From perfect competition to monopoly
10-24 min	MR versus demand	If P = 20 – Q then MR = 20 – 2Q	MR = 4 at Q = 8
24-40 min	Output from MR = MC	Read price from demand afterwards	P = 12
40-52 min	Profit and efficiency	Profit = (P – AC) x Q	Profit 64
52-60 min	Compare the two markets	Competition sets P = MC	Deadweight loss 32

03 Teaching script (read it out)

Scene 1: Act 1: three questions separate the four structures

Ask three things: how many sellers, are products differentiated, can new firms enter freely? Perfect competition means many sellers, identical products and free entry, so firms are price takers. Monopoly means one seller, no close substitute and high barriers, so the firm is a price maker. Monopolistic competition and oligopoly sit between them and are placed with the same three questions.
Ask: is a cha chaan teng perfectly competitive? (No: differentiated products, so monopolistic competition.)

Task: place Hong Kong electricity supply using the three questions and justify it.

Scene 2: Act 2: marginal revenue is not the price

With demand P = 20 – Q, total revenue is PQ = 20Q – Q^2, so MR = 20 – 2Q. The monopolist sets MR = MC: 20 – 2Q = 4, giving Q = 8. Price then comes from demand: P = 20 – 8 = 12. The key sentence: choose output first, read price second, and never substitute P for MR.
Ask: why is MR steeper than demand? (A price cut applies to every unit.)

Task: with P = 20 – Q, compute MR and TR at Q = 8.

Scene 3: Act 3: deadweight loss is one triangle

Under the same MC = 4, perfect competition sets P = MC, so Q = 16 and P = 4. The monopolist produces only 8 units at 12, earning (12 – 4) x 8 = 64. The 8 units never produced form the deadweight triangle, half x (12 – 4) x 8, a net loss of 32.
Ask: why is competitive allocation efficient? (Willingness to pay equals marginal cost.)

Task: if a price cap of 4 is imposed, compute the new quantity and name the likely problem (shortage).

04 Question types and worked steps

Type	Example	Steps	Answer
Classify a market	Given a market scenario	Sellers, product, entry	Monopoly or oligopoly
Find MR	Given a demand function	TR = PQ then differentiate; slope doubles	MR = 20 – 2Q
Price and profit	Given MC or AC	MR = MC for Q, demand for P	Q = 8, P = 12
Efficiency comparison	Compare two structures	Gap between P and MC times output gap	Loss 32

Sanity check (teach this): Monopoly price must exceed MC: 12 > 4; a lower figure means MR is wrong. Monopoly output must be below competitive output: 8 less than 16. Profit = (12 – 4) x 8 = 64, and (P – AC) x Q must give the same number. Deadweight loss counts only the units not produced; monopoly profit is a transfer, not a net loss. MR shares the demand intercept with double the slope, which two substituted Q values will confirm.

05 Independent practice (3 questions)

Question	Answer	What to watch
MR when P = 20 – Q	20 – 2Q	Double the slope
Monopoly output when MR = MC = 4	8	20 – 2Q = 4
Price and profit at that output	P = 12, profit 64	Read price off demand

06 Common mistakes and what to say

Mistake	Student writes	Say this
Using P as MR	Writes 20 – Q = 4 and gets Q = 16	Say: “That is the competitive answer. With market power you must use MR = 20 – 2Q.”
Choosing price before output	Sets P = 12 then solves for Q	Say: “MR = MC fixes output first; the demand curve gives the price afterwards.”
Calling profit a deadweight loss	Answers that the loss is 64	Say: “64 is transferred from consumers to the producer; the net loss is the triangle.”
Blurring short run and long run	Says monopoly profit attracts entry	Say: “Barriers block entry, so the profit persists; do not mix this up with competition.”

07 Homework (paper, section and question numbers)

Secondary Economics chapter index — Market structure set, questions 2 and 5
Prep guide directory — Other chapters in this subject
HKDSE Economics practice papers — Market structure questions 1-4

08 Exit check (last 5 minutes)

Question	Answer	Decision
MR when P = 20 – Q	20 – 2Q	All three right: move to efficiency
Monopoly output and price at MR = MC = 4	8 and 12	One wrong: reteach the two steps
Competitive output	16	Two or more wrong: restart at Act 1

09 Tutor FAQ

Why derive MR from demand?

A price cut applies to every unit, so the extra revenue equals the new price minus what the earlier units no longer earn.

Why is oligopoly hard to draw as one curve?

Firms react to each other, so price and output depend on rivals strategy and are analysed with game theory rather than a single MR = MC rule.

Is deadweight loss always present?

Whenever price exceeds marginal cost and output is restricted; regulation or subsidy can narrow it but rarely removes it.

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A TutorZone lesson-prep guide. Written by the TutorZone team; questions and lesson flow are original and are not taken from any school or publisher material.