Answer Structures, Diagrams & Formulae

Plan — The 20-mark essay structure

1. Introduction: define the key terms and state your line.
2. Analysis: one or two developed chains, each with an accurate cost/revenue diagram.
3. Evaluation: weigh the analysis using MICE (above all, contestability).
4. Conclusion: a clear, justified judgement — "it depends on…".

Must-know — Diagram bank

Key terms

Be ready to draw, label and interpret:

- Short-run cost curves (MC, AC, AVC, AFC) and LRAC with MES; - Perfect competition — short run (supernormal profit) and long run (normal profit); - Monopolistic competition — long-run tangency; - Oligopoly — the kinked demand curve; - Monopoly — profit-maximising with supernormal profit; - Labour market — wage determination, and the minimum wage.

Formulae — The formula sheet

$$TR = P \times Q \cdot AR = TR \div Q \cdot MR = \Delta TR \div \Delta Q$$

average revenue equals price; marginal revenue is the change in total revenue

$$TC = TFC + TVC \cdot AC = TC \div Q \cdot AFC = TFC \div Q \cdot AVC = TVC \div Q \cdot MC = \Delta TC \div \Delta Q$$

$$\text{Profit max: } MC = MR \cdot \text{Revenue max: } MR = 0 \cdot \text{Sales max: } AC = AR$$

the three business objectives as diagram conditions

n-firm concentration ratio = sum of the market shares of the largest n firms