Question 21M.1.HL.TZ1.b
| Date | May 2021 | Marks available | [Maximum mark: 15] | Reference code | 21M.1.HL.TZ1.b |
| Level | HL | Paper | 1 | Time zone | TZ1 |
| Command term | Discuss | Question number | b | Adapted from | N/A |
Discuss the consequences of a perfectly competitive market becoming a monopoly market.
[15]
Marks should be allocated according to the paper 1 markbands for May 2013 forward, part B.
Answers may include:
- definitions of perfect competition, monopoly
- diagrams of a perfectly competitive firm with only normal profit (producing at a level of output that is productively and allocatively efficient) and a monopoly with abnormal profit (producing at a level of output that is productively and allocatively inefficient)
- explanation that the firm that will dominate the industry will be able to charge a higher profit-maximizing price, make economic (abnormal) profit in the long run and produce at a level of output that is neither allocatively nor productively efficient
- examples of cases where a perfectly competitive market may be monopolized are not required, but candidates may use real-world examples of markets that have the characteristics of perfect competition or monopoly in their answers
- synthesis or evaluation (discuss).
Discussion may include: the positive and negative effects on different stakeholders; short-run and long-run effects on prices and economic (abnormal) profit; the consequences for productive and allocative efficiency, innovation, research and development; the possible positive effects of economies of scale.
NB It should be noted that definitions, diagrams, theory and examples that have already been given in part (a), and then referred to in part (b), should be rewarded.
Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.
Most candidates focused on correct but rather theoretical discussions about allocative and productive efficiencies and supported their answers with appropriate diagrams. Much fewer were those which were also able to demonstrate a real-world understanding by discussing the ability of monopolies to invest in R&D and the possible benefits to society from economies of scale.
