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S6 Economics: Market Structure and Firm Behaviour (Paper 3: challenge)
S6 Economics: Market Structure and Firm Behaviour (Paper 3: challenge)
The third paper measures concentration and efficiency loss in numbers and turns the diagram into a computable triangle.
Direct answers State the unit and the comparison base in every answer, or marks will be lost.
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 condition gives allocative efficiency?
- FoundationWhy does monopoly create a deadweight loss?
- FoundationWhat is a natural monopoly?
- IntermediateTwo firms collude and act as a monopolist. Demand is P equals 100 minus Q and marginal cost is a constant 10 dollars. What are output and price?
- IntermediateFor the same cartel, what is total profit?
- IntermediateIf the two firms compete down to price equal to marginal cost, what output results and what is consumer surplus?
- ChallengeCartel consumer surplus is only 1,012.5 dollars. How much does competition add?
- ChallengeThree firms hold 50, 30 and 20 per cent. If the largest falls to 40 and the other two rise to 30 each, how does the index change?
- ChallengeA firm charges 60 dollars to group A for 100 units and 40 dollars to group B for 150 units, with unit cost 20 dollars. What is total profit?
- Error redoA student says oligopolists always collude. What is wrong?
03 Answers and one-line notes
| # | Answer | One-line note |
|---|---|---|
| 1 | Price equals marginal cost | When the price buyers are willing to pay equals the cost of the last unit, neither more nor less output can raise total surplus. |
| 2 | Output stays below the level where price equals marginal cost, so worthwhile trades never happen | A monopolist prices above marginal cost and excludes buyers willing to pay more than the cost, so part of consumer and producer surplus disappears. |
| 3 | A market where economies of scale make one firm the cheapest supplier of the whole market | Fixed costs are very high and marginal cost low, as with water or grid supply, so duplicating the network across firms costs more. |
| 4 | Output of 45 and a price of 55 dollars | Setting marginal revenue of 100 minus 2Q equal to 10 gives 45 units, and demand then gives 100 minus 45 which is 55. |
| 5 | 2,025 dollars | Profit per unit is 55 minus 10 which is 45, and multiplying by 45 units gives 2,025. |
| 6 | Output of 90 and consumer surplus of 4,050 dollars | At a price of 10 the quantity is 90, and the surplus triangle is 0.5 times 90 times 90 which is 4,050. |
| 7 | 3,037.5 dollars more | Subtracting 1,012.5 from 4,050 gives 3,037.5, and part of that gain comes from buyers who were previously excluded. |
| 8 | It falls from 3,800 to 3,400, a drop of 400 | The original sum is 2,500 plus 900 plus 400, and the new one is 1,600 plus 900 plus 900, so more even shares lower the index. |
| 9 | 7,000 dollars | Group A yields 40 times 100 and group B yields 20 times 150, so the total is 7,000, which is third degree price discrimination. |
| 10 | It is wrong because oligopolists may also compete on price or by non price means | Collusion needs agreement and monitoring, is undermined by cheating and legal risk, and real markets often show price wars, advertising and service competition. |
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 challenge paper works on concentration and efficiency: a concentration ratio looks only at the largest firms while the Herfindahl index squares and sums every share, and the gap between the cartel quantity and the competitive quantity is the deadweight loss triangle.Tutor Registration →
Questions and answers are written originally by the TutorZone team and are not taken from any school, publisher or examination authority paper. Every value is checked by computer.