Edexcel Economics: Unit 3 Business Economics and Economic Efficiency (June 2014) EC03

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Original post by Guren

Have you read the spec, we don't have to learn those diagrams. :u:

I have read the spec and in the monopoly section it specifically states that "Diagrams should also be used to support the understanding of price discrimination. "
The only diagram we don't have to know is kinked demand curve which I would suggest you learn anyway since it's easy evaluation marks.

(edited 9 years ago)

Reply 63

User1248243

14

Original post by aminkaram

I have read the spec and in the monopoly section it specifically states that "Diagrams should also be used to support the understanding of price discrimination. "
The only diagram we don't have to know is kinked demand curve which I would suggest you learn anyway since it's easy evaluation marks.

All they do is make the ar curve more inelastic????

Kinked demand curve yeah I hear that a lot, can you explain what you would fully say?

(edited 9 years ago)

Reply 64

Livaren

I know most markschemes are in the format for 2+2 etc or 3+2+1 (just example)

Can someone write a point which would be worth 1 mark, and a point worth 2 marks and also one worth 3 marks. So I can see what the difference between awarding marks. The point can be on anything in the spec. KAA or E

Reply 65

areddishherring

Hello guys, regarding contestable markets, are barrier to entry, presence of sunk cost, and availability of trade information the only factors?

Reply 66

Original post by shankpink

Omg then I will have to revise it again. Thanks for the notes. I would be really happy if price discrimination comes up.

Yehh!! and pricing strategies are easy too... :smile:

Reply 67

Original post by Guren

All they do is make the ar curve more inelastic????

Kinked demand curve yeah I hear that a lot, can you explain what you would fully say?

I tend to use the kinked demand curve as evaluation of pricing strategies. So I usually give predatory pricing, evaluate it then give collusion, evaluate it and then I say however firms tend to compete on non price factors in an oligopoly. This can be shown using the kinked demand curve. If they raise prices demand is elastic if they lower prices demand is inelastic so they won't change price. Then I go on to give two non price factors and evaluate one of them.
Obviously, this is for a 16 mark question.

Reply 68

Original post by areddishherring

Hello guys, regarding contestable markets, are barrier to entry, presence of sunk cost, and availability of trade information the only factors?

What do you mean by availability of trade information? The other two can count as more than one point. Strictly speaking sunk costs would come under the wider group of barriers to entry and exit I think.

Reply 69

User1248243

14

Original post by aminkaram

I tend to use the kinked demand curve as evaluation of pricing strategies. So I usually give predatory pricing, evaluate it then give collusion, evaluate it and then I say however firms tend to compete on non price factors in an oligopoly. This can be shown using the kinked demand curve. If they raise prices demand is elastic if they lower prices demand is inelastic so they won't change price. Then I go on to give two non price factors and evaluate one of them.
Obviously, this is for a 16 mark question.

Yeahh nice, I got that as well :smile:

Btw Do you just draw the AR curve or the MR curve as well?
For non price factors apart from advertising what have you got?

Reply 70

RedDevil014

Can someone tell me the various pricing strategies and their evaluation?

Reply 71

Original post by Guren

Yeahh nice, I got that as well :smile:

Btw Do you just draw the AR curve or the MR curve as well?
For non price factors apart from advertising what have you got?

Apart from advertising I use investing profits into R&D which will improve dynamic efficiency and lead to higher quality products in the long run. Another good one is branding I guess but that's kind of similar to advertising. I think these are the only two which I can explain in enough detail.

Reply 72

Original post by RedDevil014

Can someone tell me the various pricing strategies and their evaluation?

Pricing strategies:
Predatory pricing
Sales maximisation
Limit pricing
skimming
discount
Game theory
Penetration pricing

Evaluation:
Predatory pricing is illegal, they might be fined by a huge amount
Sales maximisation will lead to price war
These strategies will not be effective, loyalty of the consumers to the business is much important
Kinked-demand curve - You can tell indtead of using pricing strategies firms likely to get higher prices if they collude and fix the prices at a same level...

Reply 73

areddishherring

Original post by Edward Cullen

Pricing strategies:
Predatory pricing
Sales maximisation
Limit pricing
skimming
discount
Game theory
Penetration pricing

Evaluation:
Predatory pricing is illegal, they might be fined by a huge amount
Sales maximisation will lead to price war
These strategies will not be effective, loyalty of the consumers to the business is much important
Kinked-demand curve - You can tell indtead of using pricing strategies firms likely to get higher prices if they collude and fix the prices at a same level...

Could you explain what's price skimming and penetration pricing? It wasn't listed in the specification :/

Reply 74

Original post by areddishherring

Could you explain what's price skimming and penetration pricing? It wasn't listed in the specification :/

Penetration pricing means setting a lower price especially by new entrants when they enter the market. And the prices will be lower than their rivals which makes more consumers to be attracted to that business/firm... so more market share can be gained.
But in evaluation you can write that lower prices might not necessarily attract the consumers as the incumbents have loyalty of the consumers. So lower price does not attract huge number of consumers... :smile:

and you just avoid price skimming as it's a bit difficult to apply to an oligopoly market... But it means setting a higher price even by new entrants at the starting, may be due to high quality of the product

(edited 9 years ago)

Reply 75

ASStudent

Someone explain what I need to know for shirt and long run shut down point please. Think. I get it but im slightly confused. Is it of AVC>AR in short run and AVC=AR in long run. If its AVC=AR wont they continue production as this is normal profit?

Thanks

Reply 76

Original post by ASStudent

Someone explain what I need to know for shirt and long run shut down point please. Think. I get it but im slightly confused. Is it of AVC>AR in short run and AVC=AR in long run. If its AVC=AR wont they continue production as this is normal profit?

Thanks

Heyy.. In the short run shut down point is when AVC is less than AR. This is because since AVC is less than AR it means there is no contribution towards fixed cost i.e, no money to pay off the fixed costs. So in the short run any business will continue even if they are making loss (even fixed costs cannot be covered they will continue in the short run), but will shut down is short run variable costs cannot be covered.
In the long run even Costs cannot be covered they will shut down, because competitors prices might be lower at lower AC i.e ( competitors might be productively efficient). And by setting a lower Price without being covered there Costs is impossible to continue as they cannot spend for other purposes due to lack of money. And in the long run there is no FC, its just variable costs in the long run. so if VC cannot be covered, always the business has to shut down..... this is what i understand this

Reply 77

Dilzo999

19

Are we supposed to know the kinked demand curve? My teacher has vaguely gone over it saying how it's about interdependence and something about elasticities but I'm not confident enough to actually include in an answer (Or even when).

Reply 78

ASStudent