1.5 Theory of the firm and market structures (HL only)

Explain two factors that might give rise to economies of scale for a firm.

Calculate Firm A’s average fixed costs when it is producing 125 cartons of coffee per month.

Calculate Firm A’s average variable costs when it is producing 125 cartons of coffee per month.

Using Figure 2, calculate the average fixed costs when 80 cans per month are produced.

Using Figure 2, calculate the total costs when 55 cans per month are produced.

Explain the relationship between the law of diminishing returns and a firm’s short-run cost curves.

Define the term variable costs indicated in bold in the text (paragraph [4]).

Calculate the average fixed cost per ticket if all tickets are sold.

Explain how two types of economies of scale can lead to a fall in long-run average costs.

Using a fully labelled diagram, outline the relationship between marginal product (MP) and average product (AP) of labour.

Using information from Figure 1, calculate Firm A’s total fixed costs.

Define the term economies of scale indicated in bold in the text (paragraph [3]).

Using a costs diagram, explain how the expansion of the coconut industry could lead to economies of scale (paragraph [4]).

Explain the reasons for the shape of the long-run average total cost curve.

Sketch the marginal product (MP) and average product (AP) curves for this firm.

Sketch the total product (TP) curve for this firm.

Calculate the firm’s total variable costs if output is 20 000 widgets per month.

Calculate the firm’s monthly total fixed costs if output equals 50 000 units per month.

Calculate the average fixed cost per ticket if all tickets are sold.

Calculate the average fixed cost per ticket if all tickets are sold.

Explain how two types of economies of scale can lead to a fall in long-run average costs.

Explain how two types of economies of scale can lead to a fall in long-run average costs.

Using a fully labelled diagram, outline the relationship between marginal product (MP) and average product (AP) of labour.

Using a fully labelled diagram, outline the relationship between marginal product (MP) and average product (AP) of labour.

Using information from Figure 1, calculate Firm A’s total fixed costs.

Using information from Figure 1, calculate Firm A’s total fixed costs.

Define the term economies of scale indicated in bold in the text (paragraph [3]).

Define the term economies of scale indicated in bold in the text (paragraph [3]).

Using a costs diagram, explain how the expansion of the coconut industry could lead to economies of scale (paragraph [4]).

Using a costs diagram, explain how the expansion of the coconut industry could lead to economies of scale (paragraph [4]).

Explain the reasons for the shape of the long-run average total cost curve.

Explain the reasons for the shape of the long-run average total cost curve.

Sketch the marginal product (MP) and average product (AP) curves for this firm.

Sketch the total product (TP) curve for this firm.

Calculate the firm’s total variable costs if output is 20 000 widgets per month.

Calculate the firm’s monthly total fixed costs if output equals 50 000 units per month.

Sketch the marginal product (MP) and average product (AP) curves for this firm.

Sketch the total product (TP) curve for this firm.

Calculate the firm’s total variable costs if output is 20 000 widgets per month.

Calculate the firm’s monthly total fixed costs if output equals 50 000 units per month.

Explain two factors that might give rise to economies of scale for a firm.

Explain two factors that might give rise to economies of scale for a firm.

Calculate Firm A’s average fixed costs when it is producing 125 cartons of coffee per month.

Calculate Firm A’s average variable costs when it is producing 125 cartons of coffee per month.

Using Figure 2, calculate the average fixed costs when 80 cans per month are produced.

Using Figure 2, calculate the total costs when 55 cans per month are produced.

Calculate Firm A’s average fixed costs when it is producing 125 cartons of coffee per month.

Calculate Firm A’s average variable costs when it is producing 125 cartons of coffee per month.

Using Figure 2, calculate the average fixed costs when 80 cans per month are produced.

Using Figure 2, calculate the total costs when 55 cans per month are produced.

Explain the relationship between the law of diminishing returns and a firm’s short-run cost curves.

Explain the relationship between the law of diminishing returns and a firm’s short-run cost curves.

Define the term variable costs indicated in bold in the text (paragraph [4]).

Define the term variable costs indicated in bold in the text (paragraph [4]).

Draw and label the marginal revenue (MR) curve for the 2018 Football World Cup final.

Define the term total revenue indicated in bold in the text (paragraph [6]).

Draw and label the marginal revenue (MR) curve for the concert on Figure 3.

Calculate the maximum revenue that could be earned from selling tickets for the concert.

Calculate the change in expenditure on imported oranges as a result of the increase in demand.

Draw and label the marginal revenue (MR) curve for corn for an individual farmer in Nissos on the grid below.

Sketch the marginal revenue (MR) curve for firms in the widget industry.

Sketch the total revenue (TR) curve for firms in the widget industry.

Draw and label the marginal revenue (MR) curve for the concert on Figure 3.

Calculate the maximum revenue that could be earned from selling tickets for the concert.

Draw and label the marginal revenue (MR) curve for the concert on Figure 3.

Calculate the maximum revenue that could be earned from selling tickets for the concert.

Calculate the change in expenditure on imported oranges as a result of the increase in demand.

Calculate the change in expenditure on imported oranges as a result of the increase in demand.

Draw and label the marginal revenue (MR) curve for corn for an individual farmer in Nissos on the grid below.

Draw and label the marginal revenue (MR) curve for corn for an individual farmer in Nissos on the grid below.

Sketch the marginal revenue (MR) curve for firms in the widget industry.

Sketch the total revenue (TR) curve for firms in the widget industry.

Sketch the marginal revenue (MR) curve for firms in the widget industry.

Sketch the total revenue (TR) curve for firms in the widget industry.

Draw and label the marginal revenue (MR) curve for the 2018 Football World Cup final.

Draw and label the marginal revenue (MR) curve for the 2018 Football World Cup final.

Define the term total revenue indicated in bold in the text (paragraph [6]).

Define the term total revenue indicated in bold in the text (paragraph [6]).

(ii) Using Figure 2, identify the quantity of cans per month Firm B must produce in order to maximize profits.

(iii) Calculate the economic profit when Firm B is producing at the output level identified in part (ii).

Assuming the event organizers aim to maximize profit, calculate the profit that will be made from the concert.

Calculate the economic profit/loss when Firm A is producing at the output level identified in part (b)(i).

Based on the information in Figure 2, state whether the firms in this market are making normal profits, economic profits or economic losses.

Assuming the event organizers aim to maximize profit, calculate the profit that will be made from the concert.

Assuming the event organizers aim to maximize profit, calculate the profit that will be made from the concert.

Calculate the economic profit/loss when Firm A is producing at the output level identified in part (b)(i).

Based on the information in Figure 2, state whether the firms in this market are making normal profits, economic profits or economic losses.

Calculate the economic profit/loss when Firm A is producing at the output level identified in part (b)(i).

Based on the information in Figure 2, state whether the firms in this market are making normal profits, economic profits or economic losses.

(ii) Using Figure 2, identify the quantity of cans per month Firm B must produce in order to maximize profits.

(iii) Calculate the economic profit when Firm B is producing at the output level identified in part (ii).

(ii) Using Figure 2, identify the quantity of cans per month Firm B must produce in order to maximize profits.

(iii) Calculate the economic profit when Firm B is producing at the output level identified in part (ii).

Explain why some firms might choose the goal of profit maximization while others might choose to adopt satisficing behaviour.

The market price of almonds is $11 per kilogram. Using Figure 1, identify the quantity of almonds Firm A must produce in order to maximize profits.

The market price of almonds is $11 per kilogram. Using Figure 1, identify the quantity of almonds Firm A must produce in order to maximize profits.

The market price of almonds is $11 per kilogram. Using Figure 1, identify the quantity of almonds Firm A must produce in order to maximize profits.

Explain why some firms might choose the goal of profit maximization while others might choose to adopt satisficing behaviour.

Explain why some firms might choose the goal of profit maximization while others might choose to adopt satisficing behaviour.

Using this information, draw and label the average revenue curve on Figure 2.

(ii) Using Figure 2, identify the quantity of cans per month Firm B must produce in order to maximize profits.

(iii) Calculate the economic profit when Firm B is producing at the output level identified in part (ii).

State two characteristics of a perfectly competitive market.

On Figure 2, draw and label appropriate additional curves to show how a perfectly competitive market will move from short-run equilibrium to long-run equilibrium.

Using your answer to part (c)(ii), explain how the market adjustment takes place.

Using a perfect competition diagram, explain whether farmers in the Philippines are making an economic profit or loss (Table 1).

Using a perfectly competitive firm diagram, explain the effect of declining prices of coffee beans on the profits of Honduras’ coffee farmers in the short run (paragraph [2]).

Identify the level of output at which the firm would achieve productive efficiency.

State two characteristics of a perfectly competitive market.

State two characteristics of a perfectly competitive market.

On Figure 2, draw and label appropriate additional curves to show how a perfectly competitive market will move from short-run equilibrium to long-run equilibrium.

Using your answer to part (c)(ii), explain how the market adjustment takes place.

On Figure 2, draw and label appropriate additional curves to show how a perfectly competitive market will move from short-run equilibrium to long-run equilibrium.

Using your answer to part (c)(ii), explain how the market adjustment takes place.

Using a perfect competition diagram, explain whether farmers in the Philippines are making an economic profit or loss (Table 1).

Using a perfect competition diagram, explain whether farmers in the Philippines are making an economic profit or loss (Table 1).

Using a perfectly competitive firm diagram, explain the effect of declining prices of coffee beans on the profits of Honduras’ coffee farmers in the short run (paragraph [2]).

Using a perfectly competitive firm diagram, explain the effect of declining prices of coffee beans on the profits of Honduras’ coffee farmers in the short run (paragraph [2]).

Identify the level of output at which the firm would achieve productive efficiency.

Identify the level of output at which the firm would achieve productive efficiency.

Using this information, draw and label the average revenue curve on Figure 2.

(ii) Using Figure 2, identify the quantity of cans per month Firm B must produce in order to maximize profits.

(iii) Calculate the economic profit when Firm B is producing at the output level identified in part (ii).

Using this information, draw and label the average revenue curve on Figure 2.

(ii) Using Figure 2, identify the quantity of cans per month Firm B must produce in order to maximize profits.

(iii) Calculate the economic profit when Firm B is producing at the output level identified in part (ii).

Discuss the view that legislation is the best way of dealing with the problem of monopoly power.

Discuss whether price will always be lower and output will always be higher in perfect competition compared to monopoly.

Using the diagram and your answers to parts (j) and (k), explain how the organizers could achieve their goal of profit maximisation.

Using a theory of the firm diagram, explain the output and pricing decision of M-Kopa if it chooses to pursue the goal of revenue maximization (paragraph [6]).

Evaluate the view that monopoly is an undesirable market structure as it fails to achieve productive and allocative efficiency.

Examine the role of barriers to entry in making monopoly a less desirable market structure than perfect competition.

Discuss the view that barriers to entry in a monopoly will always lead to abnormal profits in the long run.

State two assumed characteristics of a monopoly.

Explain two reasons why a monopoly may be considered desirable for an economy.

Using Figure 3, calculate the economic profit when Firm B is maximizing its profits.

Using Figure 3, calculate the total revenue when Firm B is maximizing its revenue.

Explain how a natural monopoly may arise.

Discuss how governments restrict monopoly power.

Discuss the consequences of a perfectly competitive market becoming a monopoly market.

Discuss the view that governments should always try to prevent the creation of barriers to entry in a market.

Discuss the view that barriers to entry in a monopoly will always lead to abnormal profits in the long run.

Discuss the view that barriers to entry in a monopoly will always lead to abnormal profits in the long run.

State two assumed characteristics of a monopoly.

Explain two reasons why a monopoly may be considered desirable for an economy.

Using Figure 3, calculate the economic profit when Firm B is maximizing its profits.

Using Figure 3, calculate the total revenue when Firm B is maximizing its revenue.

State two assumed characteristics of a monopoly.

Explain two reasons why a monopoly may be considered desirable for an economy.

Using Figure 3, calculate the economic profit when Firm B is maximizing its profits.

Using Figure 3, calculate the total revenue when Firm B is maximizing its revenue.

Explain how a natural monopoly may arise.

Discuss how governments restrict monopoly power.

Explain how a natural monopoly may arise.

Discuss how governments restrict monopoly power.

Discuss the consequences of a perfectly competitive market becoming a monopoly market.

Discuss the consequences of a perfectly competitive market becoming a monopoly market.

Discuss the view that governments should always try to prevent the creation of barriers to entry in a market.

Discuss the view that governments should always try to prevent the creation of barriers to entry in a market.

Discuss the view that legislation is the best way of dealing with the problem of monopoly power.

Discuss the view that legislation is the best way of dealing with the problem of monopoly power.

Discuss whether price will always be lower and output will always be higher in perfect competition compared to monopoly.

Discuss whether price will always be lower and output will always be higher in perfect competition compared to monopoly.

Using the diagram and your answers to parts (j) and (k), explain how the organizers could achieve their goal of profit maximisation.

Using the diagram and your answers to parts (j) and (k), explain how the organizers could achieve their goal of profit maximisation.

Using a theory of the firm diagram, explain the output and pricing decision of M-Kopa if it chooses to pursue the goal of revenue maximization (paragraph [6]).

Using a theory of the firm diagram, explain the output and pricing decision of M-Kopa if it chooses to pursue the goal of revenue maximization (paragraph [6]).

Evaluate the view that monopoly is an undesirable market structure as it fails to achieve productive and allocative efficiency.

Evaluate the view that monopoly is an undesirable market structure as it fails to achieve productive and allocative efficiency.

Examine the role of barriers to entry in making monopoly a less desirable market structure than perfect competition.

Examine the role of barriers to entry in making monopoly a less desirable market structure than perfect competition.

Sketch and label a diagram to illustrate the long-run equilibrium for a firm in monopolistic competition.

Explain why a monopolistically competitive firm can make economic (abnormal) profit in the short run, but not in the long run.

Sketch and label a diagram to illustrate the long-run equilibrium for a firm in monopolistic competition.

Sketch and label a diagram to illustrate the long-run equilibrium for a firm in monopolistic competition.

Explain why a monopolistically competitive firm can make economic (abnormal) profit in the short run, but not in the long run.

Explain why a monopolistically competitive firm can make economic (abnormal) profit in the short run, but not in the long run.

Discuss whether an oligopolistic firm should collude rather than compete.

Discuss whether an oligopolistic firm should collude rather than compete.

Discuss whether an oligopolistic firm should collude rather than compete.

Firm B conducted a market survey and found out that the price elasticity of demand for its brand of tea is 0.8 among urban customers, whereas it is 1.2 among customers in rural areas. The sales director said “This information could help Firm B to raise its revenue, by trying to separate the two markets, provided that certain conditions are satisfied”. Explain this statement.

State two conditions necessary for price discrimination to take place.

Using a diagram (or diagrams), explain why a profit maximizing firm might charge a higher price in one market than in another.

State two conditions necessary for price discrimination to take place.

Using a diagram (or diagrams), explain why a profit maximizing firm might charge a higher price in one market than in another.

State two conditions necessary for price discrimination to take place.

Using a diagram (or diagrams), explain why a profit maximizing firm might charge a higher price in one market than in another.

Firm B conducted a market survey and found out that the price elasticity of demand for its brand of tea is 0.8 among urban customers, whereas it is 1.2 among customers in rural areas. The sales director said “This information could help Firm B to raise its revenue, by trying to separate the two markets, provided that certain conditions are satisfied”. Explain this statement.

Firm B conducted a market survey and found out that the price elasticity of demand for its brand of tea is 0.8 among urban customers, whereas it is 1.2 among customers in rural areas. The sales director said “This information could help Firm B to raise its revenue, by trying to separate the two markets, provided that certain conditions are satisfied”. Explain this statement.