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S5 Economics paper 2: concentration, elasticity and deadweight loss
S5 Economics paper 2: concentration, elasticity and deadweight loss
Ten items cover marginal cost, concentration ratios, the Herfindahl index, the link between marginal revenue and elasticity, deadweight loss and pricing in separate markets.
Direct answers Items 01 to 03 cover marginal cost, profit and concentration, 04 to 06 profit maximisation and marginal revenue against elasticity, 07 to 09 deadweight loss, separate markets and fixed cost, and 10 the belief that a monopoly produces at minimum average cost.
01 Paper details (check answers afterwards)
| Item | Detail |
|---|---|
| Questions | 10 |
| Suggested time | 25 |
| Difficulty mix | Foundation 3 · Intermediate 3 · Challenge 3 · Error redo 1 |
| Chapter | Chapter: S5 Economics Market Structures and Monopoly |
| Level | S5 |
02 Questions (10 items)
- FoundationTotal cost is TC = 200 plus 10Q plus Q squared. Find marginal cost at Q = 15.
- FoundationDemand is P = 90 minus 2Q, output is 15 units and average cost is 25 dollars. Find total revenue, total cost and profit.
- FoundationFour firms hold 40, 30, 20 and 10 per cent of the market. Find the four-firm concentration ratio and the Herfindahl index.
- IntermediateDemand is P = 80 minus Q and TC is 0.5Q squared plus 20Q plus 100. Find output, price and profit at the maximum.
- IntermediateThe price is 60 dollars and the absolute price elasticity of demand is 3. Find marginal revenue.
- IntermediateThe price is 50 dollars and elasticity is 2. Find marginal revenue and compare it with price.
- ChallengeUsing question 4, pricing at marginal cost would give 30 units at 50 dollars. Find the deadweight loss from monopoly.
- ChallengeTwo markets have demand P = 100 minus 2Q and P = 80 minus Q, with marginal cost fixed at 20 dollars. Find output and price in each market.
- ChallengeDemand is P = 50 minus Q and TC is 100 plus 10Q. Find output, price and profit at the maximum.
- Error redoA common slip: a student assumes a monopoly always produces at the minimum of average cost. What is wrong?
03 Answers and one-line notes
| # | Answer | One-line note |
|---|---|---|
| 1 | MC is 10 plus 2Q, which is 40 dollars at Q = 15. | Marginal cost is the derivative of total cost with respect to output. |
| 2 | Total revenue is 900 dollars, total cost is 375 dollars and profit is 525 dollars. | Read the price off the demand curve, then compute each item in turn. |
| 3 | The four-firm ratio is 100 per cent and the index is 1,600 plus 900 plus 400 plus 100, or 3,000. | The Herfindahl index sums the squares of the market shares. |
| 4 | Q is 20, P is 60 dollars and profit is 500 dollars (1,200 minus 700). | Set 80 minus 2Q equal to Q plus 20, then substitute back. |
| 5 | MR is 60 times two thirds, or 40 dollars. | Marginal revenue equals price times one minus the reciprocal of elasticity. |
| 6 | MR is 50 times one half, or 25 dollars, half of the price. | The lower the elasticity, the wider the gap between marginal revenue and price. |
| 7 | The deadweight loss is half of 20 times 10, or 100 dollars. | The loss is the triangle between the two output levels. |
| 8 | Market one gives Q = 20 and P = 60 dollars; market two gives Q = 30 and P = 50 dollars. | Set each marginal revenue equal to marginal cost separately. |
| 9 | Q is 20, P is 30 dollars and profit is 300 dollars (600 minus 300). | Fixed cost does not change marginal cost, but it does reduce profit. |
| 10 | Output is set where marginal revenue equals marginal cost; the minimum average cost point applies to long-run perfect competition. | The two conditions differ, and mixing them gives the wrong output. |
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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