Sunday, May 27, 2012

Highly Possible Questions for Section B of Unit 3: Business Economics and Economics Efficiency (Edexcel) (coming soon)

There you go:

1) Identify the market structure of a business model
It will most likely appear as question (a) and it carries 4 marks. 1 mark for identifying the underlying business model as monopoly/ oligopoly, 1 mark for definition/ explanation of its characteristics and remaining 2 marks for reference from the Extracts. Watch out for key words like heavy advertisement, existence of patents, control over 25% of market share, large market capitalisation, large R&D expenditure etc

2) Identify the type of integration
Again this will appear as question (a) and it will carry 4 marks. 1 mark for identifying the type of mergerexplanation/ definition of the merger and remaining 2 marks for making reference to support the claim that the merger is e.g. horizontal e.g. horizontal, backward or forward vertical and conglomerate, 1 mark for

3) Game theory/ pricing and non pricing/ how does the threat of competition will change the behaviour of firms
Usually appear as question (c) (12 marks) or question d (16 marks). Typical answer using price competition will be revenue maximisation, sales maximisation, predatory pricing, limit pricing, BOGOF (buy one get one free). Profit maximisation and cost-plus pricing are not applicable as they will result in higher price and this will turn the tide of competition in favour of competitors. As for non-price competition, some typical standard answers will be advertisement, marketing, improvement in customer service, loyalty schemes/ cards (careful not to use in all situations), merger to avoid direct competition or suing competitor for infringement of patent e.g. Apple suing HTC for the sliding button function and the latest Apple seeking legal permission from US court to ban Samsung from selling its S3 model from the market

By drawing a Game Theory diagram, candidates are entitled to 2 marks. Further explanations will vary. It can be as minimal as 2 marks or up to 4 marks. Please relate the diagram to situation e.g. EON vs. RWE or Samsung vs. Apple rather than typical textbook answers like Firm A vs. Firm B

4) Contestability
We usually mention that the market is not contestable since existing large firms can practice predatory pricing, limit pricing, enjoy significant EOS and hence cheaper price, large budget for advertisement, R&D, brand loyalty etc. As in evaluation, we contradict by saying that the market to certain extent is contestable and provide reasons for saying so

5) Why price is cheaper in one market and more expensive in another market?
Usually appear as question (b) where it carries 8 marks. Standard answers will be lower cost in one market e.g. lower renovation costs, no need to incur high rental etc, to price discriminate, to maximise profits, demand inelastic in one segment etc

6) Benefits of integration
Easiest of the lot. Can appear as question (c) or (d). Large variation of answers and evaluations can be obtained from the web. Just type e.g. benefit of horizontal merger + source (tutor2u, economicshelp, economicsonline etc)

7) Economic efficiency
Again, this may appear as question (c) or (d). Look out for all the evidence of efficiency which is also known as cost-saving/ reduction from the Extract. Otherwise look for something else to say e.g. productive efficiency, allocative efficiency, dynamic efficiency, technical efficiency and static efficiency. Careful when elaborating these efficiencies. They all are related to costs reduction but in different forms

8) Role and power of OFT
Look out for examples or cases from the Extracts indicating the actions taken e.g. fined company X, forced BAA to put up Gatwick and Stansted for sale outside merger etc

As for MCQs, watch out for topics like natural monopoly, profit and price capping, productive and allocative efficiency for monopoly and perfect market both in short run and long run, distinguishing the nature of curves between perfect market (price taker, TR curve that increases proportionately with output and horizontal MR and AR) and imperfect market (price maker, upside-down quadratic TR curve, downward sloping MR and AR) and concept of satisficing

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