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

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    (Original post by aymanalhassan)
    Market structure was an Oligopoly. If you calculated the 4-firm concentration ratio it was at 81% which definitely indicates an oligopoly market structure as few firms control large amounts of the market share.

    You might be able to get away with 1 KAA mark by saying that 2 of the firms were legal monopolies as they were above 25% market share.
    Would I get the marks also if I calculate the 3 firm ratio being 75% and stating it is in an oligopoly and mentioning the high concentration ratio and interdependence
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    (Original post by thestudentoffram)
    Would I get the marks also if I calculate the 3 firm ratio being 75% and stating it is in an oligopoly and mentioning the high concentration ratio and interdependence
    Yep, that would be full marks
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    (Original post by thestudentoffram)
    Sure I showed a shift in AR and MR and then mentioned that the Gum market was shrinking and that the patent was being competed.For the second option I said that Revolymer would no longer have the ability to set price as the other firms are comepting the patent away .However the product they produce may not be as good as the one Revolymer do .What do you think about thta answer?
    Yes good answer, many people did the shift in AR due to the 'shrink in the gum market in the US'.

    I did a different approach.

    Graph I drew: Costs and revenue graph. Showed AC as above AR and AVC below AR. Although this wasn't entirely stated in the extract, I just used this graph to support my first point: That perhaps they are leaving the US market as they have decided that the contribution to their fixed costs is not worth it, and that the speculation of the market shrinking would mean that there would be less of a chance of prospering in the US gum market. Therefore, they took the decision to leave the market as they decided that paying 300,000 to leave will be a less loss of paying 500,000 annually to operate. They basically loss confidence in the US market.

    Evaluation: I said that it completely depends on the brand loyalty of Revolymer. If they have built up a core consumer base in the US market then the shrinking size of the market should not be too significant. In fact, maybe other firms would leave and therefore Revolymer would have more potential customers.

    Second point: Leaving the US market was the rational choice to make. They would move to Ireland where they would merge with Topaz - seems likes a wise decision as they would increase market share if they merge with Topaz. Therefore, they would be able to reach their Minimum Efficient Scale quicker as they would have more output - exploiting economies of scale quicker. It just seems like more potential profit is to be made in Ireland rather than the US.

    Evaluation: We have no idea of the size of Revolymer or Topaz. No information was provided. Therefore the benefits of the merge may not be that great as other gum firms in the UK may be much larger and oligopolistic.
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    for question 8 could you have used game theory to show why firms are interdependent?
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    For the question 9, 16 marker I put :

    Point 1: predatory pricing, new entrant hasn't established itself and so can be driven out of the market if the incumbent firm lowers prices a lot.

    Evaluation: The firm originally in the market could be sanctioned by the competition commission (new organisation isn't in spec) for anti competitive actions by being fined since consumers will have less choice if a new entrant is forced to exit the market.

    Point 2: horizontal integration/merger, this strategy could both make sure that the firm does not have more competition + could make the firms market share increase as it will be a larger firm.

    Evaluation: If the firm expands too much, it can create diseconomies of scale , with communication issues.

    Point 3: Takeover: The original firm could forcefully try and takeover the new entrant and absorb it, as this would remove a rival and ensure profits will not be affected. (Weaker point but felt the need for a 3rd)

    Evaluation: once again market regulators would view this as an anti competitive act, and may try and protect the new entrant by subsiding it, which would allow it to establish itself within the market and potentially stop a takeover

    Obviously wrote in more detail but, what do you guys reckon this could get /16?

    I preferred the data response (no9) over the multiple choice to be honest, what about you guys?
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    (Original post by Mike_123)
    Was that even an option?
    It was an option but I don't think that's the answer as in past paper questions they had also given that as an option but it wasn't the best or most likely option.
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    Hi guys,
    I thought the paper was alright and seemed very standard. Multiple choice required some thinking and question 9 was probably easier than question 10. I did question 9 myself.
    On the multiple choice when there was something about oligoply, I'm pretty sure it wasn't A as that option said firms are INDEPENDENT instead of INTERDEPENDENT.
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    (Original post by Mike_123)
    Was that even an option?
    Nah 8 option A. Governments don't want to borrow money in the short term. They rather let private companies do it so that government can use their money elsewhere.
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    (Original post by shabba-ranks)
    For the question 9, 16 marker I put :

    Point 1: predatory pricing, new entrant hasn't established itself and so can be driven out of the market if the incumbent firm lowers prices a lot.

    Evaluation: The firm originally in the market could be sanctioned by the competition commission (new organisation isn't in spec) for anti competitive actions by being fined since consumers will have less choice if a new entrant is forced to exit the market.

    Point 2: horizontal integration/merger, this strategy could both make sure that the firm does not have more competition + could make the firms market share increase as it will be a larger firm.

    Evaluation: If the firm expands too much, it can create diseconomies of scale , with communication issues.

    Point 3: Takeover: The original firm could forcefully try and takeover the new entrant and absorb it, as this would remove a rival and ensure profits will not be affected. (Weaker point but felt the need for a 3rd)

    Evaluation: once again market regulators would view this as an anti competitive act, and may try and protect the new entrant by subsiding it, which would allow it to establish itself within the market and potentially stop a takeover

    Obviously wrote in more detail but, what do you guys reckon this could get /16?

    I preferred the data response (no9) over the multiple choice to be honest, what about you guys?
    You could of definitely included non-pricing strategies such as advertising and improving product quality to create a barrier to entry.
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    Q8 was not A - PFI does in fact lead to an immediate increase in government borrowing, but it does not lead to an immediate increase in government spending. It was a cheeky trick they added in...
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    (Original post by aymanalhassan)
    You could of definitely included non-pricing strategies such as advertising and improving product quality to create a barrier to entry.
    Yeah could have done with putting advertising down. What do you reckon I might have got though?
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    What will be my Economics grade be if i get unit1- A, unit2- A, unit 3- C unit 4- A. Don't think i did too well in this exam. Thanks in advance.
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    Predictions for questions in unit 4??
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    I put

    Pricing strategies: Predatory and limit pricing etc in alot of detail

    Evaluation: Kinked demand theory + retaliation leading to a price war

    Non-price strategies with an aim of shifting demand such as improved quality, loyalty schemes and complementary products

    Evaluation: might lead to retaliation...

    Game theory, and how existing firms can collude to knock out the new firm but by pricing high and colluding with the new firm they can all make more but then using prisoners dilemma how its worth cheating as an evaluation

    would i get above 10 marks?
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    (Original post by shabba-ranks)
    Yeah could have done with putting advertising down. What do you reckon I might have got though?
    14/16 but depends how well and detailed your points and eval were. Looks like you made the main points, if the markscheme demands a conclusion then you could possibly lose 1 or 2 marks for not having a conclusion. It's a * question after all.
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    Guys, was it a monopoly or oligopoly for the answer in the question 9(a)
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    (Original post by jontyl96)
    Q8 was not A - PFI does in fact lead to an immediate increase in government borrowing, but it does not lead to an immediate increase in government spending. It was a cheeky trick they added in...
    no m8 it's the same concept.
    Yes SPENDING doesn't go down, no OC incurred.

    But it aleo means they don't have to BORROW straight away either!
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    (Original post by aymanalhassan)
    Nah 8 option A. Governments don't want to borrow money in the short term. They rather let private companies do it so that government can use their money elsewhere.
    I thought about that question for a long time and am still convinced it is not A. A said "it does not lead to an immediate increase in government borrowing" - this is exactly what PFI is though (when the private sector lends funds to the public sector for a project). I put E being the best answer though still not 100% correct. It would have been A if it had said government SPENDING not BORROWING.

    Does anyone see where I'm coming from?
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    (Original post by topblogger)
    Hi guys,
    I thought the paper was alright and seemed very standard. Multiple choice required some thinking and question 9 was probably easier than question 10. I did question 9 myself.
    On the multiple choice when there was something about oligoply, I'm pretty sure it wasn't A as that option said firms are INDEPENDENT instead of INTERDEPENDENT.
    No Option A was talking about a trait of interdependence, it was option B or C that said that firms were independent?
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    (Original post by jontyl96)
    I thought about that question for a long time and am still convinced it is not A. A said "it does not lead to an immediate increase in government borrowing" - this is exactly what PFI is though (when the private sector lends funds to the public sector for a project). I put E being the best answer though still not 100% correct. It would have been A if it had said government SPENDING not BORROWING.

    Does anyone see where I'm coming from?
    E is wrong. The Government can just hire their own professionals to build their buildings and not get a private firm to do it. They use a PFI so that private firms can fund it, that is the MAIN use of a PFI. So governments would not need to borrow huge sums of money in the short term which is option A. Hope I explained it to you well enough .
 
 
 
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