econ ans - FINAL SAMPLE EXAM A QUESTION 21(a Use a cost and...

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FINAL SAMPLE EXAM A QUESTION 21 (a) Use a cost and revenue diagram to explain the long run equilibrium position of a typical firm operating in a highly concentrated market structure. (5 marks) Students may approach this question by describing the long run position of either oligopoly or monopoly. Award 2 marks for the correct and fully labelled diagram. This diagram should show the cost, revenue and supernormal profit. Some students may use the kinked demand curve for oligopoly or normal profit or MC pricing for a regulated monopolist. Do not penalise them. Make appropriate deductions where diagrams are poorly drawn or incorrect. The remaining 3 marks are to be used for the accompanying explanation. 1 mark for the explanation of the diagram (level of output, price where MR=MC and the area of supernormal profit), and 2 marks for the explanation of why the firm produces at this level of output. This could be explained in terms of high barriers to entry preventing new firms entering the industry (probably the most common explanation) producing in the elastic range of the demand curve, not charging the highest possible price. Students who mistakenly write about firms operating in industries with low market concentration can be awarded a maximum of half marks. (b) How does this differ from the long run position of firms operating in market structures where there is a low degree of market concentration? (5 marks) Students may take different approaches to this question. Some students may use a diagram showing a firm operating under conditions of perfect competition of monopolistic competition and earning a normal profit. If this approach is taken then award 2 marks for a complete and accurate diagram and 3 marks for the accompanying explanation. Other students may discuss the differences in general terms. Be flexible and impression mark this approach. As a guide to earn full marks students would need to explain the long run normal profit situation in terms of low barriers to entry, the ease of exit or entry, the impact on market price and the move to normal profit. Deduct marks for incomplete or inaccurate explanations. Students who mistakenly describe the long run position for firms with a high degree of concentration can be awarded a maximum of half marks. QUESTION 22 (a) Explain the meanings of the terms’ consumption’ and ‘savings’ (5 marks) Correct definitions of Consumption and Savings should be awarded 2 marks each. Give 1 mark for any extra information such as C is component of aggregate demand or S is a leakage from circular flow etc (b) According to Keynesian theory how might an increase in the level of planned savings affect the level of economic activity? Use a diagram in your answer (5 marks) Award 2 marks for an accurate diagram that shows an increase in planned S as an upward shift in S line resulting in a intersection with I line at a lower level of national income and hence a fall in economic activity. Award 3 marks for a good explanation of how an increase in S results in a fall in national income due to the
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econ ans - FINAL SAMPLE EXAM A QUESTION 21(a Use a cost and...

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