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Question 20N.1.HL.TZ0.a

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Date November 2020 Marks available [Maximum mark: 10] Reference code 20N.1.HL.TZ0.a
Level HL Paper 1 Time zone TZ0
Command term Explain Question number a Adapted from N/A
a.
[Maximum mark: 10]
20N.1.HL.TZ0.a

Explain how a natural monopoly may arise.

[10]

Markscheme

Marks should be allocated according to the paper 1 markbands for May 2013 forward, part A.

Answers may include:

  • definition of natural monopoly
  • diagram to show falling long-run average costs at least up to the point where the LRAC curve intersects the market demand curve
  • explanation that a natural monopoly is a firm that experiences such significant economies of scale (eg due to investment in fixed capital) that it is able to satisfy the demand for the entire market at a level of output where it still experiences falling average total cost and/or that natural monopoly arises due to a natural barrier to entry such as ownership of vital input for production
  • examples of natural monopoly.
Examiners report

Stronger candidates were able to clearly distinguish between monopoly and natural monopoly but quite a few candidates just wrote everything they knew about monopoly, maybe hoping that there would be enough overlap between monopoly and natural monopoly to earn some marks.

Syllabus sections