## Monday, January 19, 2009

### What To Be Expected For Unit 4 Examination?

As a teacher, I feel rather bad seeing my students struggling next week Monday, a day which they shouldn’t. That is actually the biggest day for the Chinese as we will be celebrating CNY, a festival equivalent to Christmas

But nevertheless, that’s the hard fact. It’s also the last paper for all Edexcel examinations in January sittings

This posting is actually in response to request by my students, wanting to know what will likely appear in Unit 4 both Part A (MCQ) & Part B (Essay)

But bear in mind, Unit 4 is rather hard to predict accurately due to the following reasons:

(a) It is such a huge Unit & there are just too many things that they can ask

(b) Questions in Unit 4 have high tendency to combine topics with topics unlike the previous Units

Having said so, doesn’t mean that there are no popular questions. There are some which has high tendency to repeat themselves. I will now go to Part A.

Types of questions tested (% means chances of coming out)

(1) Calculations on MC, MR, AC, AR & AVC (100%)

(2) Theory of curves. Students must know that the MC will ALWAYS cut the AC at its minimum. As MC is below AC, AC will decrease. On the other hand if MC is above AC, AC will rise (80%)

(3) Identifying the market structure for perfectly competitive market. Students will be given options A to E such as steel company, pharmaceutical, coal mines, national newspaper & wheat. So in this case if a student has chose wheat, then he is right (40%)

(4) A perfectly competitive market is productively inefficient in SR (P ≠ AC) but productively efficient in LR (P = AC). It is both allocatively efficient in SR & LR (80%)

(5) As long as P > AVC, even though the perfectly competitive firm is making losses in the short run, it will still continue to produce (50%)

(6) Changes to output & price when a monopoly firm switches its objective from e.g. profit maximisation to sales maximisation. In this case, a student must be able to identify that price has went down but quantity of output produced increases (90%)

(7) Changes to output & price when there is a change to either AC & MC or AR & MR. In this case, students must draw the diagram in order to have a better view (80%)

(8) Assumptions of price discrimination. Students must be able to tell that if willingness to pay is low (PED greater than 1), producers musnt't charge a high price & vice versa. Also situations will be given & students are asked to assess which of those, price discrimination is highly unlikely e.g. car sold in European market, rail travel, bus travel, theme park & milk on the shelves (50%)

(9) Concepts of productive & allocative efficient are also tested for monopoly related questions. Make sure you know that a monopolist is neither productive nor allocative efficiency in BOTH short run & long run (95%)

(10) Concepts of rising concentration ratio & how can this lead to establishment of collusive practices, predatory pricing, limit pricing to drive new competitors away, & how its mergers will likely attract the attention of Competition Commission & Office of Fair Trading (OFT). Also it must be acknowledged that in the oligopoly market, barriers of entry & exit are rather high. Expect around 2 questions from here (100%)

(11) Calculations of market share & making conclusion that the reference market is oligopoly (80%)

(12) Role of OFT & Competition Commission is to protect public interest, ensure existence of choice & maintaining a certain level of competition within an industry (100%)

(13) Price control by industry regulators such as RPI-X & RPI+K (100%)

Part B

(1) Calculation of concentration ratio & identifying the market structure. Sometimes students will be asked to explain the changing concentration ratio (80%)

(2) Is the reference market contestable? Argue by giving sound reasons for both side (100%)

(3) Why firms in oligopoly market collude? Answer this by showing kinked demand curve or Game Theory diagram. May carry around 8m to 12m (70%)

(4) Diagrams of monopoly. They may ask things like what happen to profit, price & quantity if there are changes to AC & MC or AR & MR (70%)

(5) How does a monopolist maximise profit using price discrimination? Draw a diagram, give assumptions & explain how it works (80%)

(6) Naming 2 types of inefficiencies a firm faced. Mention about productively inefficient & allocatively inefficient. Draw a diagram & then give examples from Extracts. Very popular in recent years (90%)

(7) How does Competition Commission & OFT function to protect consumers’ interest? (80%)