Question 20N.3.HL.TZ0.1g.ii
| Date | November 2020 | Marks available | [Maximum mark: 3] | Reference code | 20N.3.HL.TZ0.1g.ii |
| Level | HL | Paper | 3 | Time zone | TZ0 |
| Command term | Label, Sketch | Question number | g.ii | Adapted from | N/A |
The market for shampoo displays the characteristics of monopolistic competition.
Sketch and label a diagram to illustrate the long-run equilibrium for a firm in monopolistic competition.
[3]
[1] for D tangential to ATC (AC)
[1] which is vertically above intersection of MR and MC
[1] for correctly indicating Po and Qo, where MR = MC and D is tangential to ATC
A response with missing or incorrect labels or without MC intersecting minimum ATC may be awarded a maximum of [2].
Vertical axis may be labelled P or Price or Costs or Revenue. Horizontal axis may be labelled Quantity or Q or Output.
NB Provided that the price and quantity have been labelled (eg Po, Qo) then it is not necessary to label the axes.
Well-prepared candidates were able to sketch an accurate diagram and earn full marks. However, a significant majority were unable to do so. The important feature that distinguishes monopolistic competition from monopoly in the long run is that AR (the demand curve) is tangential to the ATC curve, but not at minimum ATC, which would be the case in perfect competition. (Students should note that a monopoly may also be making normal profits when it so happens that its profit maximizing quantity occurs where AR intersects ATC.)
