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S6 Economics: Market Structure and Firm Behaviour (Paper 1: basics)
S6 Economics: Market Structure and Firm Behaviour (Paper 1: basics)
The first paper fixes the basic distinctions among the four market structures: number of firms, product homogeneity, entry barriers and pricing power.
Direct answers Every answer should name the criterion used rather than just reciting a label.
01 Paper details (check answers afterwards)
| Item | Detail |
|---|---|
| Questions | 10 |
| Suggested time | 20 |
| Difficulty mix | Foundation 3 · Intermediate 3 · Challenge 3 · Error redo 1 |
| Chapter | Chapter: S6 Economics: Market Structure and Firm Behaviour |
| Level | S6 Economics |
02 Questions (10 items)
- FoundationInto which four market structures do economists group markets?
- FoundationIs a firm in perfect competition a price taker or a price maker?
- FoundationWhat is the shape of the demand curve facing a price taker?
- IntermediateHow does the demand curve facing a monopolist differ from that facing a perfectly competitive firm?
- IntermediateWhy is a monopolist marginal revenue below price?
- IntermediateAnnual market sales are 20 million dollars and the top four firms sell 4, 3, 2 and 1 million. What is CR4?
- ChallengeFive firms hold market shares of 30, 25, 20, 15 and 10 per cent. What is the Herfindahl index?
- ChallengeAt which output does a profit maximising firm produce?
- ChallengeA firm sells 50 units at 20 dollars each and total cost is 800 dollars. What are total revenue and profit?
- Error redoA student claims a perfectly competitive firm can set its own price to earn more profit. What is wrong?
03 Answers and one-line notes
| # | Answer | One-line note |
|---|---|---|
| 1 | Perfect competition, monopolistic competition, oligopoly and monopoly | The criteria are the number of firms, whether products are homogeneous and the height of entry barriers, running from many firms with no barrier to a single firm behind high barriers. |
| 2 | A price taker | One firm produces a tiny share of the market, so it cannot move the price and simply accepts the price set by market demand and supply. |
| 3 | A horizontal line, so demand is perfectly elastic | A small price rise cuts sales to zero while a small cut sells any quantity, so the demand curve is horizontal at the market price. |
| 4 | The monopolist faces the downward sloping market demand curve while the competitive firm faces a horizontal line | A monopolist is the only supplier, so the whole market demand curve is its own demand curve and it must cut price to sell more. |
| 5 | Selling one more unit requires a lower price on all units, so revenue on earlier units falls too | The price effect is negative: the extra unit earns the new price but every earlier unit now sells for less, which pulls marginal revenue below price. |
| 6 | 50 per cent | The top four together sell 10 million out of 20 million, which is 50 per cent, because a concentration ratio adds only the largest firms. |
| 7 | 2,250 | Square each share and add them: 900 plus 625 plus 400 plus 225 plus 100 gives 2,250, and a figure closer to ten thousand means a more concentrated market. |
| 8 | Where marginal revenue equals marginal cost and marginal cost is rising | Output adds profit while marginal revenue exceeds marginal cost and subtracts it afterwards, so the dividing point is the profit maximum. |
| 9 | Total revenue 1,000 dollars and profit 200 dollars | Revenue is 20 times 50 which is 1,000, and subtracting the 800 cost leaves 200, because profit is total revenue minus total cost. |
| 10 | It is wrong because the firm is a price taker and any price rise drives sales to zero | Products are identical and firms are numerous, so buyers switch at once and a higher price sells nothing, which means the premise of price setting does not hold. |
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.
Three basics: classify the four market structures by the number of firms, product homogeneity and barriers to entry, remember that a perfectly competitive firm is a price taker facing a horizontal demand curve, and note that a monopolist faces the downward sloping market demand so marginal revenue lies below price.Tutor Registration →
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