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Question 23M.1.HL.TZ1.a

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Date May 2023 Marks available [Maximum mark: 10] Reference code 23M.1.HL.TZ1.a
Level HL Paper 1 Time zone TZ1
Command term Explain Question number a Adapted from N/A
a.
[Maximum mark: 10]
23M.1.HL.TZ1.a

Explain why, in monopolistic competition, abnormal profits can be made only in the short run.

[10]

Markscheme

Refer to Paper 1 markbands for May 2022 forward, available under the "My tests" tab > supplemental materials.

Answers may include:

  • Terminology: monopolistic competition, short run, abnormal profit, barriers to entry.
  • Explanation: of the short run profit-maximizing position with abnormal profit being made; and of the long run position being affected by entry of new firms, resulting in decrease in demand for existing firms, with abnormal profits being eliminated and normal profits eventually being made.
  • Diagram: short run and long run monopolistic competition diagrams.

Assessment Criteria

Part (a) 10 marks

Examiners report

Assumptions of monopolistic competition firms appeared to be understood by most candidates who attempted this question. Short-run abnormal profits were well-explained by most with generally correct diagrams. However, some candidates did not explain well the long-run adjustment to normal profits. There was also some confusion between the diagrams for perfect competition and monopolistic competition.

Syllabus sections