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S6 Economics: Market Structure and Firm Behaviour (Paper 2: intermediate)
S6 Economics: Market Structure and Firm Behaviour (Paper 2: intermediate)
The second paper links demand, marginal revenue and market concentration into one line of calculation.
Direct answers Write the shares first, square and add them, and only then judge how concentrated the market is.
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)
- FoundationWhat is the main difference between monopolistic competition and perfect competition?
- FoundationWhat is the most important feature of an oligopoly?
- FoundationName three common barriers to entry.
- IntermediateMarket demand is P equals 100 minus 2Q. What is the price when Q is 10?
- IntermediateFor the same demand, what is marginal revenue at Q equal to 10?
- IntermediateIf marginal cost is 20 dollars, what output and price make marginal revenue equal 20?
- ChallengeFour firms hold 40, 30, 20 and 10 per cent. What are the Herfindahl index and CR2?
- ChallengeIf the firm with 20 per cent is bought by the firm with 40 per cent, what is the new index and the change?
- ChallengeThe market price under perfect competition is 30 dollars and a firm marginal cost is 20. Should it expand output?
- Error redoA student says a lower Herfindahl index means a more concentrated market. What is wrong?
03 Answers and one-line notes
| # | Answer | One-line note |
|---|---|---|
| 1 | Products are differentiated rather than homogeneous | Differentiation gives each firm a downward sloping demand curve and short run pricing above marginal cost, although entry and exit remain free. |
| 2 | Few firms that are mutually interdependent | Any price or output change by one firm visibly affects its rivals, so each decision must allow for the reaction of the others. |
| 3 | Patents, economies of scale and government franchise | Patents and franchises exclude rivals by law while economies of scale put a newcomer at a cost disadvantage, and each keeps the market closed. |
| 4 | 80 dollars | Substituting 10 gives 100 minus 20 which is 80, and price falls as quantity rises along the demand curve. |
| 5 | 60 dollars | Marginal revenue is 100 minus 4Q, which gives 100 minus 40 and therefore 60, below the price of 80. |
| 6 | Q of 20 and a price of 60 dollars | Solving 100 minus 4Q equals 20 gives 20 units, and substituting into demand gives 100 minus 40 which is 60. |
| 7 | An index of 3,000 and CR2 of 70 per cent | Squaring and adding gives 1,600 plus 900 plus 400 plus 100, which is 3,000, while the top two hold 70 per cent, and the two measures capture different things. |
| 8 | An index of 4,600, a rise of 1,600 | The merged shares are 60, 30 and 10 per cent, so 3,600 plus 900 plus 100 gives 4,600, which is 1,600 above 3,000. |
| 9 | Yes, until marginal cost rises to 30 dollars | Marginal revenue is the market price of 30, above the marginal cost of 20, so each extra unit still adds profit until the two are equal. |
| 10 | It is wrong because a lower index means a more fragmented market and ten thousand is a pure monopoly | The index sums squared shares, so a single firm with 100 per cent gives the maximum of 10,000 and more even shares push the figure towards zero. |
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.
The intermediate step joins diagrams to numbers: demand P = a minus bQ corresponds to marginal revenue a minus 2bQ, and profit is maximised where marginal revenue equals marginal cost, so output should rise while marginal revenue stays above marginal cost.Tutor Registration →
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