Question 19M.1.HL.TZ1.b
| Date | May 2019 | Marks available | [Maximum mark: 15] | Reference code | 19M.1.HL.TZ1.b |
| Level | HL | Paper | 1 | Time zone | TZ1 |
| Command term | Evaluate | Question number | b | Adapted from | N/A |
Evaluate the view that monopoly is an undesirable market structure as it fails to achieve productive and allocative efficiency.
[15]
Marks should be allocated according to the paper 1 markbands for May 2013 forward, part B.
Answers may include:
- definitions of monopoly, productive efficiency, allocative efficiency
- diagrams to show productive and allocative inefficiency under profit-maximizing monopoly firm, economies of scale leading to lower prices and higher output
- explanation of why the profit maximizing choices of a monopoly firm lead to productive and allocative inefficiency
- examples of inefficiencies in monopoly markets in practice
- synthesis or evaluation (evaluate).
Evaluation may include: reasons why monopoly might be desirable (eg possibilities of economies of scale and the case of natural monopoly, the need to innovate to maintain economic profit, ability to finance research and development). Other reasons why monopoly may be undesirable (eg low quality of the products and services, x-inefficiency).
Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.
The great majority of candidates were able to draw a monopoly diagram and correctly determine the profit-maximizing level of output. Considerably fewer candidates were also able to show (correctly!) on the diagram the levels of output associated with allocative and productive efficiency. Some candidates were able to identify either the positive or the negative features of monopoly but did not explore the both sides of the issues as the question implies.
