IB Economics Week 3

The week 3 revision ticklist.

Revision Ticklist. Do you know…

Cost Theory

Types of costs (FC, VC and TC)- total, average and marginal

Short Run

Law of diminishing returns
Total product, average product, marginal product
Short run cost curves

Long Run

Economies and diseconomies of scale
Long run cost curves

Revenues

Total, marginal and average revenue

Profit

Distinction between normal (AC = AR) and supernormal (AC

Profit maximisation (MC = MR)
Alternatives to profit max (sales maximisation, satisficing, revenue maximisation)

Perfect Competition

Assumptions
Model in short and long run
Shut down price
Allocative and productive efficiency

Monopoly

Assumptions
Model
Barriers to entry
Natural monopoly
Monopoly vs Perfect competition comparison

Monopolistic Competition

Assumptions
Short vs Long run model
Product differentiation

Oligopoly

Assumptions
Collusive and non-collusive oligopoly
Cartels
Kinked demand curve
Importance of non-price competition
Contestable market theory

Price Discrimination

Definition and types
Reasons for discrimination
Conditions necessary for discrimination
Advantages to producer and consumer

Short Answers [10 marks]

1. Distinguish between the law of diminishing returms and returns to scale

2. Using appropriate diagrams, discuss whether monopoly is more efficient or less efficient than perfect competition

3. With the help of a diagram, explain why a firm should shut down in the short run

4. Explain the concept of natural monopoly

5. Using at least one diagram, explain the difference between profit maximisation and sales rrevenue maximisation as goals of the firm.

Essay Questions

1a) What are the main assumptions made by economists when discussing the model of perfect competition [10]

b) Why are these assumptions likely to be unrealistic in practice [10]

2a) In what ways do firms operating in different market structure compete [10]

b) Discuss the view that the more competitive there is within each industry the better [15]

3a) Explain how a firm operating in an oligopolistic market might attempt to increase its market share [10]

b) Evaluate the view that producers, and not consumers, are the main beneficiaries of oligopolistic structures [15]

Over the coming days and weeks I will be developing a more comprehensive set of resources for IB economics keep an eye on this blog and the website for updates.