Thursday, January 20, 2011

Tips to Score Well for MCQ Unit 3: Business Economics and Economics Efficiency (Edexcel)

General technique

(1m) for correct option, (1m) for relevant definition and (2m) for explaining why the correct option is chosen

Specific techniques

I find that students are generally struggling especially to secure the remaining (2m) from explanation. Well, worry no more. I can assure you that if the techniques below are carefully applied, I can help you to increase your chance of scoring by 50%

• If you can support your answer with a diagram, please provide one. This is very applicable to questions related to topics like revenue and costs, perfect competition, monopoly and monopolistic
• If you are given a diagram, try to annotate or add curves. It may carry (1m) or (2m). Again this is applicable to topics outlined above
• If you are given a table with total costs or/ and total revenue, try to perform calculation such as marginal cost, average cost, marginal revenue and average revenue
• If you think that it is hard for you to explain a scenario say economies of scale, why AFC is falling as output increases etc try to provide simple numerical explanation. It will definitely help you
• If you have chosen the wrong option, under the new Edexcel Unit 3 specification, you can still secure up to (3m) from (4m). As such there is no need to panic if you are really not sure about the option
• If you have chosen the correct option but do not know how to explain it correctly, you can gain a maximum of (2m) by explaining why the other options are incorrect. Having said so, you ought to be careful in choosing which option to be eliminated. Make sure that you have sufficient knowledge. Secondly, you are reminded that not all options can be corrected as some of the answers are totally irrelevant that there is no way it can be corrected

What are the possible questions in MCQ?

Perfect competition
Watch out for topics like productive and allocative efficient. Also candidates must exhibit knowledge like why perfect market firms are only making normal profits in the long run. There is possibility that candidates may have to choose one out of five options, which resembles perfect market. They may provide options like coal mining, pharmaceutical, hairdressing, newspaper firms and wheat. Remember to choose answers that are agriculture related. Remember to draw diagram for questions on productive and allocative efficient as well as issues like supernormal or normal profit

Monopoly
Watch out for price discrimination. Remember the definition, assumptions, diagram and it what way price discrimination has been practiced. Productive and allocative efficient also likely to come out. Definitions of these two are essential and remember to draw diagram to support your answer. In the past, exam questions are extremely popular on change in objectives say from profit max to revenue max etc and change in costs (MC and AC) or change in revenue (MR and AR). However I have strong feeling that these topics are unlikely to be tested under new specification

Oligopoly
Make sure you know the following facts well. Oligopoly firms are few in the industry, they are highly interdependent, have high barriers to entry, price collusion/ price fixing/ tacit collusion is common, prefer non price competition, not contestable and has high sunk costs, high concentration ratio and often draw the attention of OFT, Competition Commission and European Commission. Watch out for few types of questions like benefits of mergers, game theory, concept of branding or advertisement and how is it related to high barriers of entry and in what way their act attracts the attention of regulators. It could be price fixing, agreements with distributors etc. Kinked demand curve is no longer in specification and therefore will not be tested

Monopolistic
Again, watch out for topics like productive and allocative efficient. Candidates have to remember that all firms that have price making ability are generally not efficient in both productive and allocative. Also you are reminded that only normal profits are made in the long run due to low barriers of entry and exit (perfect market has no barriers to entry and exit). Also they may ask you to choose which of the possible five options that represent monopolistic firm. It is easy to differentiate. Look for the business that is likely to have the lowest possible costs among the five

Regulators
Make sure you are familiar with roles of regulators like maintaining healthy competition and to safeguard consumers’ interest. Also expect possible questions on price capping like RPI-X and RPI+K. There are many ways to confuse students with these two terminologies. Under the new specification, candidates are required to have knowledge on price capping as well as profit capping and be able to identify the pros and cons between these two. Somehow the possibility of profit capping to reappear in this round of Unit 3 is remote since nothing much can be asked and considering that it is just recently tested (January 2010)

Hope this helps!! I will upload the next posting on Section B in a couple of hours. Stay tune.