Business Economics and Economic Efficiency Competition . ... 3.3.10 HOW DOES THE THREAT OF COMPETITION AFFECT A FIRM ... markets . Business Economics and Economic Efficiency Unit 3

Business Economics and Economic Efficiency Unit 3

Magdalen College School: Economics Department 2012 REVISION BOOKLET UNIT 3 1



SPECIFICATION OVERVIEW

Exam board: Edexcel

Unit code: 6EC03

Content Summary:

This unit develops the content of Unit 1 and examines how the pricing and

nature of competition between firms is affected by the number and size of

market participants. At the end of this unit, students should be able to analyse

the pricing and output decisions of firms in different contexts. They should also

be capable of making an appraisal of government intervention aimed at

promoting competitive markets.

Assessment:

Examination length: 1 hour 30 minutes

Total marks on the paper = 72 marks

40% of the A2 marks = 80UMS

Supported multiple-choice questions where students write a short justification

of why they chose that answer and/or why the other answers are incorrect.

Worth 32 marks.

One data response question out of a choice of two questions. Worth 40 marks.

Exam Dates



3.3.1 WHAT OBJECTIVES DO FIRMS HAVE?

Concept Definition/Explanation/Pros Cons? Diagram?

Profit maximisation

Revenue maximisation

Sales maximisation

Behaviour theories

(to include “satisficing”)



3.3.2 WHY DO FIRMS GROW?


Company growth

Types of integration

Reasons for integration



Why do some firms remain small

Reasons for demerger



3.3.3 HOW CAN WE CALCULATE THE REVENUE OF A FIRM?


Revenue

Total Revenue

Average Revenue



Marginal Revenue

Relationship between total revenue, price elasticity of demand and marginal revenue



3.3.4 HOW CAN WE CALCULATE THE COSTS OF A FIRM?


Costs

Total Costs

Fixed Costs

Variable Costs

Average total costs



Average fixed costs

Average variable costs

Marginal cost



Law of diminishing returns (short run concept)

Returns to Scale (long run concept)

Economies of Scale (Long run concept)



Diseconomies of scale (long run concept)

Sources of Internal Economies & Diseconomies of scale



External economies and diseconomies of scale



3.3.5 WHAT IS MEANT BY EFFICIENCY?


Productive efficiency

Allocative efficiency

X inefficiency



Dynamic Efficiency



3.3.6 WHAT IS MEANT BY PROFIT?


Normal Profit

Abnormal Profit (Supernormal Profit)

Profit Maximisation



Shut down point



3.3.7 WHAT BARRIERS EXIST TO FIRMS ENTERING AND LEAVING MARKETS?


Barriers to entry and exit

How barriers affect the behaviour of firms



3.3.8 WHAT DO WE MEAN BY MARKET CONCENTRATION?


Market concentration ratios

Significance for business behaviour



3.3.9 WHAT DETERMINES THE BEHAVIOUR OF FIRMS?


Perfect Competition

Monopoly



Monopsony

Oligopoly



Game Theory

Monopolistic Competition



3.3.10 HOW DOES THE THREAT OF COMPETITION AFFECT A FIRM’S BEHAVIOUR?


Contestability

Examples of contestable markets



3.3.11 WHY DOES THE GOVERNMENT INTERVENE IN MARKETS TO MAINTAIN COMPETITION?


Government intervention to maintain competition in markets

Explain and evaluate measures aimed at enhancing competition between firms and their impact on prices, output and market structures



Compare and evaluate the strengths and weaknesses of methods of regulation eg price capping, monitoring of prices and performance targets

Documents

Business Economics and Economic Efficiency Competition . ... 3.3.10 HOW DOES THE THREAT OF COMPETITION AFFECT A FIRM ... markets . Business Economics and Economic Efficiency Unit 3