Edexcel A2 Economics Unit 3 6EC03 (June 20th 2016) Exam Thread

.JC.

Why is the answer to this question B? Initially I drew a price/costs/revenue diagram and shifted mc upwards and decreased AR and MR, but this had the effect of price increasing, so I thought, because it says "a firm cuts the price of its product..." it wasn't MC that caused it, so there would be a shift along the MC rather than shifting the whole MC upwards, but that would mean the price is higher. So is there a way I can show it clearly on a diagram as I don't really understand the one on the mark scheme?

You need to split the information it gives you into two parts, and then work out the answer from there.

'Total revenue falls'. If this happens as a result of a reduction in price, then it is evident that demand for the product is inelastic, as a fall in price will lead to a smaller relative rise in output (e.g. price falls by 10, output rises by 5), leading to a fall in total revenue.

'Marginal cost rises'. As you know from the previous part, price has fallen and output has risen. The reason for marginal costs rising as output rises is the law of diminishing returns.

Using these two pieces of information you can deduce that B is the correct answer. To back up the points you make, draw an inelastic demand curve, and a marginal cost curve which is rising. This could be done on the same diagram.

I'd then throw in a knock out point for A stating that 'A is incorrect since if demand was elastic, a fall in price would have likely lead to a rise in total revenue'. You could also knock out B because if TR falls, profit would not increase (unless costs fell by a larger proportion).

(edited 7 years ago)

Reply 181

study2016

1

I don't understand the links between AC, MC, TC, TR, MR etc etc
I know all the definitions for them but would not be able to show their relationships using graphs. Can anyone explain or point me to a resource which simply explains the relationships, preferably with diagrams to illustrate the concept?

Thanks

Reply 182

.JC.

14

Original post by study2016

I don't understand the links between AC, MC, TC, TR, MR etc etc
I know all the definitions for them but would not be able to show their relationships using graphs. Can anyone explain or point me to a resource which simply explains the relationships, preferably with diagrams to illustrate the concept?

Thanks

Here you can see that AR (average revenue) is equal to demand. You don't really need to know why this is but if you want to know for context, there are videos explaining it. MR (marginal revenue) is twice a steep as AR. Again, you don't need to know why, but if you want to then you can watch a video explaining it. If demand (AR) shifts left or right, MR will also shift by an equal amount.

MC (marginal costs) will always cross AC (average costs) as the lowest point. Again, feel free to watch a video explaining why this is, as it's probably not the sort of thing I can explain via text.

You need to learn where different firms will produce on the diagram. E.g. profit maximisers produce where MC=MR, as you can see from the diagram above. The difference between AR and AC is the profit area, as seen by the rectangle on the diagram.

In a perfectly competitive market, AR=MR, so the demand curve (D=AR=MR) is perfectly elastic and is drawn as a horizontal line.

This is just basic stuff but read over a textbook/revision guide and watch some videos (econplusdal) which will explain all of the things you need to know.

(edited 7 years ago)

Reply 183

study2016

1

Original post by .JC.

Here you can see that AR (average revenue) is equal to demand. You don't really need to know why this is but if you want to know for context, there are videos explaining it. MR (marginal revenue) is twice a steep as AR. Again, you don't need to know why, but if you want to then you can watch a video explaining it. If demand (AR) shifts left or right, MR will also shift by an equal amount.

MC (marginal costs) will always cross AC (average costs) as the lowest point. Again, feel free to watch a video explaining why this is, as it's probably not the sort of thing I can explain via text.

You need to learn where different firms will produce on the diagram. E.g. profit maximisers produce where MC=MR, as you can see from the diagram above. The difference between AR and AC is the profit area, as seen by the rectangle on the diagram.

This is just basic stuff but read over a textbook/revision guide and watch some videos (econplusdal) which will explain all of the things you need to know.

Thanks - I understand those graphs.
I am talking about the upside-down U diagrams (looks like the Laffer curve diagram) and then the S-shaped TC/TR diagrams.

Sometimes I have seen mark schemes where there are two diagrams one above another with dotted lines being shared by both diagrams simultaneously to show some form of relationship. Those are the ones which I do not understand.

Reply 184

.JC.

14

Original post by study2016

Thanks - I understand those graphs.
I am talking about the upside-down U diagrams (looks like the Laffer curve diagram) and then the S-shaped TC/TR diagrams.

Sometimes I have seen mark schemes where there are two diagrams one above another with dotted lines being shared by both diagrams simultaneously to show some form of relationship. Those are the ones which I do not understand.

I'm not sure you necessarily need to know those; I'd just stick to the regular ones.

I think they are just a way of showing separate costs/revenues without using the whole market diagram.

Reply 185

irMike

5

For Unit 4, Are the advantages/drawbacks of Globalisation more or less the exact same as the advantages/drawbacks of Trade?

Reply 186

jamojo12

How can you use the kinked demand theory for evaluation?

Reply 187

.JC.

14

Original post by jamojo12

How can you use the kinked demand theory for evaluation?

Kinked demand theory suggests that in an oligopoly, the price will remain sticky. You can therefore mention this as an evaluation to any question where you talk about price changes/pricing strategies in an oligopolistic market. I.e. kinked demand theory suggests that in an oligopolistic market, the price will not change, and firms will product at an equilibrium point between the elastic and inelastic part of the demand curve. You can proceed to drawn MR on the diagram to show that even if there is a shift in costs, price remains the same.

Reply 188

A-LevelEconomist

2

June 2013 has some of the worst data-responses I have seen.

The 16 markers:

Assess the case for creating an effective market where competition is the downward pressure on prices rather than price cap-regulation.

Reply 189

kuraishi

Guys can anyone give me like short exam tips on getting marks? my theory is fine, but haven't got enough time to practice.

Reply 190

CynicalRaven

8

Original post by A-LevelEconomist

June 2013 has some of the worst data-responses I have seen.

The 16 markers:

Assess the case for creating an effective market where competition is the downward pressure on prices rather than price cap-regulation.

Agreed that entire paper was dreadful.

Reply 191

A-LevelEconomist

2

Original post by CynicalRaven

Agreed that entire paper was dreadful.

Yes the whole egg data response was awful and this one was too, even the MCQ were harder than usual- hoping for a good paper tomorrow.

Reply 192

CynicalRaven

8

Original post by A-LevelEconomist

Yes the whole egg data response was awful and this one was too, even the MCQ were harder than usual- hoping for a good paper tomorrow.

Suprisngly the grade boundaries were standard. I honestly thought that the 2015 paper was great which makes me a little bit worried. Hopefully our paper is just as nice with easy to understand questions. Although that being said Q10 was definetly much better than Q9, in my opinion. I would say Jan 2013 is probably the best paper, maybe june 2014.

(edited 7 years ago)

Reply 193

MouseyBrown

9

Original post by CynicalRaven

Suprisngly the grade boundaries were standard. I honestly thought that the 2015 paper was great which makes me a little bit worried. Hopefully our paper is just as nice with easy to understand questions. Although that being said Q10 was definetly much better than Q9, in my opinion. I would say Jan 2013 is probably the best paper, maybe june 2014.

Yeah sometimes the case studies seem so straight forward but sometimes they are really awkward, like that egg one.

All I want tomorrow is to look at one of the case studies and like it straight away. No gas market infrastructure monopsony EU egg regulation crap.