Exam Practice

Questions in the style of the WEC13 paper (2 hours, 80 marks). Try them timed, then check the guidance in the next section.

A — Section A — multiple choice (6 marks)

1. In perfect competition, a single firm's demand curve is: (a) downward sloping; (b) horizontal (perfectly elastic); (c) vertical; (d) upward sloping.
2. A firm profit-maximises where: (a) AR = AC; (b) MC = MR; (c) MR = 0; (d) AC is at a minimum.
3. If the top three firms hold 40%, 25% and 15%, the 3-firm concentration ratio is: (a) 40%; (b) 55%; (c) 80%; (d) 100%.
4. Which is an internal economy of scale? (a) a local pool of skilled labour; (b) bulk-buying (purchasing); (c) better local transport; (d) knowledge sharing between firms.
5. A market is contestable when: (a) there is only one firm; (b) entry and exit barriers are low; (c) products are identical; (d) firms collude.
6. Third-degree price discrimination requires all except: (a) price-setting power; (b) separable markets with different PEDs; (c) the ability to prevent resale; (d) a single price for all consumers.

B — Section B — data response (sample, of 34)

Real world

Extract — GlobalCo

GlobalCo holds 70% of its national market, protected by patents and a strong brand. It has just acquired a key supplier and earns large profits. The regulator is now considering imposing a price cap.

1. With reference to the extract, explain one barrier to entry protecting GlobalCo. (4)
2. With the aid of a diagram, explain how GlobalCo is able to earn supernormal profit. (6)
3. Examine the likely effects of the regulator imposing a price cap on GlobalCo. (10)

C — Section C — essays (answer two of three, 20 marks each)

1. Evaluate the view that monopolies always act against the interests of consumers. (20)
2. Assess whether a minimum wage is an effective way to reduce poverty. (20)
3. Discuss whether oligopoly is more likely to harm or to benefit consumers. (20)