Market Structures | Edexcel A-Level Economics A (9EC0)

Market Structures

235 questions
17 subtopics
Theme 3: business behaviour and the labour market
Paper 1 and Paper 3

Covers how the number and behaviour of firms shapes price, output and efficiency: perfect competition, monopolistic competition, oligopoly, monopoly and monopsony, and how contestable a market is..

It covers efficiency, the assumptions of perfect competition and its revenue curves, perfect competition: equilibrium and efficiency, the characteristics of monopolistic competition, monopolistic competition: short-run and long-run equilibrium, excess capacity and efficiency in monopolistic competition, the characteristics of oligopoly and concentration ratios, collusive and non-collusive behaviour, game theory, price and non-price competition, the characteristics of monopoly and its equilibrium, third degree price discrimination, the costs and benefits of monopoly, and natural monopoly, what monopsony is and where its power comes from, the costs and benefits of monopsony, contestable markets and hit-and-run competition, barriers to entry and exit and sunk costs and the degree of contestability.

Sample questions from Market Structures

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

Efficiency

Define X-inefficiency.

Show the answer
X-inefficiency occurs when a firm fails to minimise its costs of production due to lack of competitive pressure, resulting in actual costs exceeding the minimum possible costs.
Perfect competition: equilibrium and efficiency

State the full equilibrium condition showing the relationship between MC, MR, AR and ATC in long-run equilibrium for a perfectly competitive firm.

Show the answer
MC = MR = AR = ATC at the equilibrium output.
Monopolistic competition: short-run and long-run equilibrium

Why does the entry of new firms occur when existing firms earn supernormal profits?

Show the answer
Because low barriers to entry allow new firms to enter and capture some of the available profits.
The characteristics of oligopoly and concentration ratios

What is meant by interdependence of firms in an oligopoly?

Show the answer
Each firm must consider the likely reactions of rival firms when making pricing and output decisions.
Game theory, price and non-price competition

What is a price war?

Show the answer
When competing firms repeatedly cut prices to gain market share, often resulting in reduced profits for all firms involved.
Third degree price discrimination

What is one benefit of third-degree price discrimination for consumers who are highly price-sensitive?

Show the answer
They receive lower prices than they would under a single uniform price, making goods and services more affordable for them.
What monopsony is and where its power comes from

Where does the marginal cost curve lie relative to the supply curve for a monopsonist?

Show the answer
The marginal cost curve lies above the supply (average cost) curve.
Contestable markets and hit-and-run competition

Why does the threat of hit-and-run competition discipline incumbent firms?

Show the answer
Because potential entrants can quickly capture supernormal profits and leave, forcing incumbents to keep prices competitive to deter entry.

The 17 subtopics

One subtopic is one session. Work down the list.

Subtopic	What it covers	Questions
Efficiency	Recall questions on allocative, productive and dynamic efficiency and on X-inefficiency, and on the condition each requires.	19
The assumptions of perfect competition and its revenue curves	Recall questions on the assumptions of perfect competition, why the firm is a price taker facing a horizontal demand curve, why AR equals MR, the MC = MR rule, short-run losses and shut-down, and the firm’s supply curve.	16
Perfect competition: equilibrium and efficiency	Recall questions on short-run profits and losses, how entry and exit restore normal profit, and the efficiency of long-run equilibrium.	15
The characteristics of monopolistic competition	Recall questions on many firms, differentiated products, low barriers, and the pricing power differentiation gives.	12
Monopolistic competition: short-run and long-run equilibrium	Recall questions on how entry erodes supernormal profit and what the tangency condition means in the long run.	12
Excess capacity and efficiency in monopolistic competition	Recall questions on reading the diagram, calculating supernormal profit, and why excess capacity makes the firm neither productively nor allocatively efficient.	16
The characteristics of oligopoly and concentration ratios	Recall questions on high barriers, interdependence and product differentiation, and on calculating and interpreting an n-firm concentration ratio.	10
Collusive and non-collusive behaviour	Recall questions on why firms collude and why collusion breaks down, and on overt and tacit collusion, cartels and price leadership.	21
Game theory, price and non-price competition	Recall questions on the prisoner's dilemma, dominant strategies and Nash equilibrium, and on price wars, predatory and limit pricing, and non-price competition.	13
The characteristics of monopoly and its equilibrium	Recall questions on barriers to entry, the price-making firm, and how output, price and supernormal profit appear on a monopoly diagram.	11
Third degree price discrimination	Recall questions on the conditions it requires, how it is shown on a diagram, and its costs and benefits for firms and consumers.	20
The costs and benefits of monopoly, and natural monopoly	Recall questions on allocative inefficiency and deadweight loss set against economies of scale and dynamic efficiency, and on what makes a monopoly natural.	15
What monopsony is and where its power comes from	Recall questions on the sole buyer, why its marginal cost curve lies above supply, and the sources of monopsony power.	11
The costs and benefits of monopsony	Recall questions on lower input prices and possible consumer gains, set against the effect on suppliers, wages and allocative efficiency.	12
Contestable markets and hit-and-run competition	Recall questions on what makes a market contestable, hit-and-run entry, limit pricing, and how the threat of entry disciplines an incumbent.	11
Barriers to entry and exit	Recall questions on structural, strategic and legal barriers, and on the barriers to exit that deter entry in the first place.	11
Sunk costs and the degree of contestability	Recall questions on what sunk costs are, why they reduce contestability, why contestability is a matter of degree, and how economies of scale, brand loyalty and advertising act as barriers to entry.	10

Market Structures is 235 of the 2,508 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.