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

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    (Original post by PatBateman)
    Shut down point is the point at which a firm does not cover average variable cost i.e. it will only shut down if AR is below AVC. This is because as long as the firm is covering AVC it will be making a contribution to fixed costs (which have to be paid for by default in the short run), so shutting down would be unwise.
    thank u Pat!
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    (Original post by PatBateman)
    Shut down point is the point at which a firm does not cover average variable cost i.e. it will only shut down if AR is below AVC. This is because as long as the firm is covering AVC it will be making a contribution to fixed costs (which have to be paid for by default in the short run), so shutting down would be unwise.
    Does the shut down point only occur in PC or is it all market structures?
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    Does anyone know if a rise in variable cost will shift the average cost and marginal cost curve?

    What factors would affect shifts in the AC/MC curve in a cost/revenue diagram?
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    (Original post by areddishherring)
    Does anyone know if a rise in variable cost will shift the average cost and marginal cost curve?

    What factors would affect shifts in the AC/MC curve in a cost/revenue diagram?
    Fixed costs relate to AC curves so a change in fixed costs such as wages would shift upwards or downwards. Variable costs shift shift both AC and MC
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    (Original post by Dilzo999)
    Does the shut down point only occur in PC or is it all market structures?
    All market structures, except that a monopoly or oligopoly should never (theoretically) make a loss. Knowing about the shut-down point is referred to as break even analysis is likely to only come up in the multiple choice - however, you can use it for evaluation of firms leaving the industry if you see fit in the data response.
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    (Original post by PatBateman)
    Well regulation (price capping) came up last year and the 16 marker was to discuss other forms of regulation which could improve economic efficiency. The other data response was on monopsony power. Going by this, I would doubt that either of those will come up. Especially seeing as monopsony had come up on January as well. I would put bet on question 9 being competition/contestability in a market (maybe fast food) and then question 10 being some sort of monopoly power asking about price discrimination and the role of the competition commission.
    Hmm thanks for that!!
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    (Original post by areddishherring)
    Does anyone know if a rise in variable cost will shift the average cost and marginal cost curve?

    What factors would affect shifts in the AC/MC curve in a cost/revenue diagram?
    (Original post by Sladed2230)
    Fixed costs relate to AC curves so a change in fixed costs such as wages would shift upwards or downwards. Variable costs shift shift both AC and MC
    Wages are a variable cost, not a fixed cost, since they can rise can fall.
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    HAS ANYONE NOTICED A TREND IN EXAM PAPER QUESTIONS OVER THE YEARS? Like which topics occur most for example?

    Please private message me if you have...
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    Hi guys, there was a question in January 2012, 9c), not very sure whether I got my points correctly. Wanted to get some opinion from you guys.

    Assess the likely impact on economic efficiency in the UK banking industry of increased regulation of UK banks. [12m]

    Role of Regulator: promote competition and protect consumer interest.

    1. One form of regulation are fines. This forms as a punishment and deterrence for anti-competitive behaviour such as collusive pricing strategies by major banks and forces banks to instead engage in competitive pricing of their rates on loans. Hence, it will increase allocative efficiency as prices/rates are kept low for consumers.

    2. Another form of regulation is price capping, e.g. RPI-X. For example, interest rates on loans cannot exceed 5% (just a conjecture). This helps prevent banks from exploiting consumers with exorbitant prices/rates on loans. Therefore, to maximise their profit margin, firms will strive minimise costs elsewhere such as wages or rent, thereby increasing productive efficiency.

    3. Regulators can also monitor price and costs of banks. They will act as surrogate competitors in the market. This will create increased competition within the market as authorities begin monitoring behaviours of firms. This will reduce x-inefficiency as banks will lose 'market power' and dominant control over the market.

    Evaluation:

    4. However, measures such as profit capping will decrease dynamic efficiency. Due to reduced profits, there are less available resources to re-invest further. Instead, shareholders would simply hold onto their dividends. Moreover, it will also discourage investment due to a lack of lucrative returns, lowering incentive to remain dynamic efficient.

    5. There is also the possibility of regulatory capture. Often, government officials consult experts from the industry, who are likely to be bankers as well, due to imperfect knowledge of the market. However, said experts may be biased. Hence, they may cause the government failure if they help to further the interests of firms instead of consumers.

    6. In effort to increase productive efficiency, consumers may suffer a loss in quality of service. As prices are capped, firms will try to cut costs elsewhere like retrenchment or less qualified staff to increase profits. This may mean poorer quality of service in banks to attend to consumers. In return, for cheaper loans, consumers may have to face more inefficient bank staff and longer waiting time.

    Could this work?
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    (Original post by areddishherring)
    Hi guys, there was a question in January 2012, 9c), not very sure whether I got my points correctly. Wanted to get some opinion from you guys.

    Assess the likely impact on economic efficiency in the UK banking industry of increased regulation of UK banks. [12m]

    Role of Regulator: promote competition and protect consumer interest.

    1. One form of regulation are fines. This forms as a punishment and deterrence for anti-competitive behaviour such as collusive pricing strategies by major banks and forces banks to instead engage in competitive pricing of their rates on loans. Hence, it will increase allocative efficiency as prices/rates are kept low for consumers.

    2. Another form of regulation is price capping, e.g. RPI-X. For example, interest rates on loans cannot exceed 5% (just a conjecture). This helps prevent banks from exploiting consumers with exorbitant prices/rates on loans. Therefore, to maximise their profit margin, firms will strive minimise costs elsewhere such as wages or rent, thereby increasing productive efficiency.

    3. Regulators can also monitor price and costs of banks. They will act as surrogate competitors in the market. This will create increased competition within the market as authorities begin monitoring behaviours of firms. This will reduce x-inefficiency as banks will lose 'market power' and dominant control over the market.

    Evaluation:

    4. However, measures such as profit capping will decrease dynamic efficiency. Due to reduced profits, there are less available resources to re-invest further. Instead, shareholders would simply hold onto their dividends. Moreover, it will also discourage investment due to a lack of lucrative returns, lowering incentive to remain dynamic efficient.

    5. There is also the possibility of regulatory capture. Often, government officials consult experts from the industry, who are likely to be bankers as well, due to imperfect knowledge of the market. However, said experts may be biased. Hence, they may cause the government failure if they help to further the interests of firms instead of consumers.

    6. In effort to increase productive efficiency, consumers may suffer a loss in quality of service. As prices are capped, firms will try to cut costs elsewhere like retrenchment or less qualified staff to increase profits. This may mean poorer quality of service in banks to attend to consumers. In return, for cheaper loans, consumers may have to face more inefficient bank staff and longer waiting time.

    Could this work?
    Yeah good points Apart what is the evaluation to fines??
    Also do the 16 marker question and i'll give feedback thanks
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    (Original post by Guren)
    Yeah good points Apart what is the evaluation to fines??
    Also do the 16 marker question and i'll give feedback thanks
    Would it be possible to evaluate as a whole instead of evaluating individual points? I'm not very sure on the exam structure.

    If I were to evaluate...

    However, it would depend on how large a fine would authorities place on banks. In 2010, regulators fined RSB 26 million pounds (information from extract). If Barclays were to collude with RSB (firms mentioned in the extracts), it might be possible that the excess profits could be greater than the fine. Hence, it may pose little impact to deter anti-competitive behaviour among firms if they stand to gain more from colluding.
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    hi can someone help me

    does game theory describe collusion/ price rigidity/ interdependency or all three?
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    (Original post by areddishherring)
    Would it be possible to evaluate as a whole instead of evaluating individual points? I'm not very sure on the exam structure.

    If I were to evaluate...

    However, it would depend on how large a fine would authorities place on banks. In 2010, regulators fined RSB 26 million pounds (information from extract). If Barclays were to collude with RSB (firms mentioned in the extracts), it might be possible that the excess profits could be greater than the fine. Hence, it may pose little impact to deter anti-competitive behaviour among firms if they stand to gain more from colluding.
    You can do either its fine And yeah good EV point.
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    Wooohooo i've finally found the thread, this should be an alright exam!
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    (Original post by pineapple78)
    hi can someone help me

    does game theory describe collusion/ price rigidity/ interdependency or all three?
    Collusion is cooperation on things like pricing as they could both fix high prices and get higher revenue as game theory shows.

    Interdependency means one firms actions is dependent on the action of other firms. Such as pricing like price leadership.
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    (Original post by ASStudent)
    For a game theory question, what are people going to right. All I can think of is a payoff table explaining why and why not collude and then the kinked demand curve. Would that be enough if it asks to refer to game theory?

    Thanks
    The question only asks you to refer to game theory! If you look at the mark scheme it's enough as long as at least one of your points is game theory. Otherwise they will take away two marks. So I would say as long as you have any one of a written explanation / pay off matrix / kinked demand curve you're good to go.
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    (Original post by aminkaram)
    The question only asks you to refer to game theory! If you look at the mark scheme it's enough as long as at least one of your points is game theory. Otherwise they will take away two marks. So I would say as long as you have any one of a written explanation / pay off matrix / kinked demand curve you're good to go.
    anyone got any tips on how to structure multiple choices and how to get 4/4?

    Thanks.
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    (Original post by peter qwert)
    anyone got any tips on how to structure multiple choices and how to get 4/4?

    Thanks.
    1 mark for the correct answer
    usually 1 mark for a definition
    1/2 marks for further analysis/explanation
    1/2 marks for a knockout of an incorrect answer
    sometimes you can get all the marks using a diagram without explanation
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    (Original post by peter qwert)
    anyone got any tips on how to structure multiple choices and how to get 4/4?

    Thanks.
    What I try and do is give 3 points and 1 elimination point. So If 1 of my points isn't on the mark scheme I still pick it up with the elimination. If I'm struggling to find points I might do 2 points and 2 eliminations. I would say it's useful to have an elimination since you would pick a mark up even if your key is wrong
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    Can someone please answer this mcq.
    Which of the following is not an argument in favour of regulating an industry
    A presence of negative externalities
    B Monopoly power
    C Highly contestable market
    D public good characteristics
    E Assymetric information
 
 
 
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