Friday, January 20, 2012

Quick Tips for Unit 3: Business Economics and Economics Efficiency Exam

Hi candidates, am sorry that I wouldn't be able to give a full and detailed coverage of tips for Unit 3. Here are some quick ones:

Section A: MCQ

1. Try to make good use of the diagrams given. You can shade area of supernormal profits or losses, add curves like shifting MC and AC or/ and MR and AR etc

2. Try to produce a diagram if you think that your answer can be supported by one. Applicable to topics like cost and revenue, perfect market, monopoly, profit maximisation, revenue maximisation, sales maximisation, price discrimination, kinked demand curve, game theory etc

3. If you are being provided with figures, perform calculation. Some relevant topics are like AR, AC, MC, MR, profits, losses, AVC, AFC etc

4. You may come up with your own figure if you think that it is relevant to the explanation

5. You can eliminate up to two wrong answers. Letter of the eliminated options MUST be stated and a valid economic reason must be given. The whole sentence must be reproduced

6. Go for definitions. Maximise your chance of scoring. Many questions these days can have up to 2/3 definitions


Section B: Data Response

1. There will only be 4 questions and the total marks are 40

2. The first question will always carry 4m and it involves definitions e.g. patents, horizontal integration, economies of scale etc plus a reference

3. Watch out for the following questions:
a) Contestability. You may say that the industry of concern is not contestable due to its oligopolistic feature e.g. high R&D expenditures, expensive equipments, high advertisements budget, patents etc and for evaluations, it is contestable due to factors like niche market, internet marketing etc

b) Efficiency. Focus not only on productive and allocative efficiency but also on other form of efficiency like technical, dynamic and static efficiency

c) Pricing strategy (may involve game theory) and non-pricing strategy. Kind of a tricky question. Provide the 2x2 matrix and explain that Firm A is undercutting its rival in order to steal market share and enlarge its super normal profits and then another non-pricing strategy. Evaluation you may refer back to the game theory and mention that such price war will lead to a lose-lose situation and hence most likely to collude

d) Benefits of merger between oligopoly firms

e) Role of regulators e.g. OFT/ Competition Commission/ ECC/ Ofwat/ Ofgen/ Oftel and price capping

4. Watch out on how they phrase those questions. Sometimes, the easiest and the most common question can be phrased into something 'bombastic' and you might think that it is a new question. For e.g. 'To what extent does the threat of competition change the behaviour of the firms' is a 'bombastic' version of 'Explain one pricing strategy and one non-pricing strategy that could be adopted by an oligopoly firm'

5. You may give different types of economies of scale/ efficiency and it will be regarded as separate points. This is applicable to questions that are relevant

6. Explanation and evaluation marks are divided equally (except for the 4m question)
a) 8m = 4+4 (22/13)
b) 12m = 6+6 (33/ 222/ 123)
c) 16m = 8+8 (2222/332/ 44)

7. For those who are running out of time for revision, focus on monopoly and oligopoly. Data response will always linger around these two. By the way, focus on some new topics. They are hits in recent years e.g. PPP (Public Private Partnerships), PFI (Private Finance Initiatives), rate of return/ profit capping and performance targets

Best of luck and Happy Chinese New Year (bad timing) for those celebrating it. Gong Xi Gong Xi :)


Oh ya, one more. Don't choose a question e.g. chocolate/ cars/ cameras etc just because you think you are fancy of those stuffs. They are not testing you on the models or functions of the camera etc, but the economic sides of it. So, choose wisely

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