Perfect Competition, Imperfectly Competitive Markets and Monopoly | AQA A-Level Economics (7136)

Perfect Competition, Imperfectly Competitive Markets and Monopoly

381 questions
25 subtopics
Paper 1: Markets and market failure, and available on Paper 3
Paper 1 and Paper 3

Perfect competition, imperfectly competitive markets and monopoly is examined on Papers 1 and 3, and is the largest topic in the microeconomics half.

It works along the spectrum from perfect competition to monopoly, and judges each structure on efficiency and on what it does to consumers.

Sample questions from Perfect Competition, Imperfectly Competitive Markets and Monopoly

Answer each one closed book first, then open the answer.

The characteristics of the four market structures

In monopolistic competition, what is meant by there being many firms?

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A large number of firms operate in the market, each holding a small market share, so no single firm dominates.
The objectives of firms

Define market share as a firm objective.

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Increasing market share means a firm aims to capture a larger proportion of total sales in its market, which may be pursued alongside or instead of profit maximisation.
Price taking, entry and exit, and long-run equilibrium

How does the entry of new firms affect market supply and price in perfect competition?

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Entry shifts the market supply curve to the right, which reduces the market price.
Monopolistic competition in the long run

How does the exit of firms affect the demand curve facing remaining firms in monopolistic competition?

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Demand for remaining firms increases, shifting their demand curves rightward.
Collusion, cartels and price leadership

What is a cartel?

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A formal collusive agreement between firms to coordinate prices, output levels or market shares to maximise joint profits.
Monopoly power and barriers to entry

Why does product differentiation increase monopoly power?

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It makes a firm's product appear unique, reducing substitutability with competitors' products and giving the firm more control over price.
Price discrimination

Under third-degree price discrimination, which consumer group is charged the higher price and why?

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The group with more price inelastic demand is charged a higher price because they are less responsive to price changes and will still purchase at higher prices.
Contestable and non-contestable markets

What is hit-and-run competition?

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When firms enter a market to exploit short-term supernormal profits and then exit before incumbents can respond, which is only possible when sunk costs are low.

The 25 subtopics

One subtopic is one session. Work down the list.

Subtopic	What it covers	Questions
The characteristics of the four market structures	The number of firms, product type and barriers to entry in each of the four structures.	19
Price takers, price makers and non-price competition	Why some firms take the market price and others set it, and what product differentiation does.	13
Competitive markets	The assumptions of a perfectly competitive market, and how price and profit are determined in one.	18
The objectives of firms	Profit, survival, growth, sales revenue maximisation, quality and satisficing, and how each changes behaviour.	17
Profit maximisation and the divorce of ownership from control	The MC = MR rule, the principal-agent problem, managerial slack, and Simon on satisficing.	15
Profit maximisation and the shutdown condition	Normal and supernormal profit, when a firm keeps producing at a loss, and when it shuts down.	12
Price taking, entry and exit, and long-run equilibrium	Why the individual firm's demand curve is horizontal, and how entry and exit restore normal profit.	16
Efficiency in perfect competition and its assumptions	Allocative and productive efficiency in the long run, and why real markets fall short of the model.	11
Monopolistic competition in the short run	The characteristics of the structure, and the short-run position with supernormal profit or loss.	10
Monopolistic competition in the long run	How entry and exit produce the tangency position, and the part played by non-price competition.	19
The characteristics of oligopoly and barriers to entry	Interdependence, concentration ratios, and the barriers that keep oligopolistic markets concentrated.	21
The kinked demand curve and price rigidity	The kinked demand curve model, why it predicts sticky prices, and what it leaves out.	15
Collusion, cartels and price leadership	Collusive and non-collusive oligopoly, cartels and why they break down, tacit collusion and price wars.	14
Non-price competition in oligopoly	Advertising, branding, quality, service and loyalty schemes, and why firms prefer them to price cuts.	8
The advantages and disadvantages of oligopoly	Economies of scale and innovation set against higher prices, inefficiency and reduced choice.	10
Monopoly power and barriers to entry	What gives a firm monopoly power, and how barriers to entry sustain it.	16
The monopoly diagram and supernormal profit	Locating the profit-maximising price and output, and showing supernormal profit on the diagram.	12
The costs and benefits of monopoly	Allocative and productive inefficiency, X-inefficiency and deadweight loss, against economies of scale and innovation.	14
Price discrimination	The conditions it requires, the three degrees, and its effects on output, surplus and welfare.	24
The dynamics of competition	How competition drives price down, quality up and efficiency forward over time.	11
Creative destruction and the competitive market process	Schumpeter's account of how new entrants displace incumbents, and why dominance is rarely permanent.	19
Contestable and non-contestable markets	Sunk costs, hit-and-run entry, and why the threat of entry can discipline an incumbent.	14
Static and dynamic efficiency	Productive and allocative efficiency at a point in time, set against innovation over time.	20
Market structure and resource allocation	How each structure allocates resources, and the conduct and performance indicators used to judge it.	15
Consumer and producer surplus	Locating both on a diagram, and what happens to them when a monopoly replaces competition.	18

Perfect Competition, Imperfectly Competitive Markets and Monopoly is 381 of the 2,344 questions in the guide.Get the guide, £8

How the guide is worked

Answering a question from memory stores it far better than reading the answer again. The guide runs that as a fixed procedure on one subtopic at a time, about twenty minutes a session.

Step 1 · Closed book
Cover the answers. Work through one subtopic and write down what you can. Leave blanks where you have nothing.
Step 2 · Open book
Go back to the top. Read each printed answer and write it out in full, including the ones you had right.
Step 3 · Closed book again
Same questions, same order, from memory. The gap between pass one and pass three is the session result.

Read the full method, the return schedule and the research behind it.