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

1. (Original post by PatBateman)
Game theory is a pretty good one to know. For a 16 marker if it says 'refer to game theory' you can actually get 8/8 KAA for a well-developed game theory analysis.

You need to learn the pay off matrix, simplest way to do this is by doing a quadrant as such.

High Price Low Price
High £3 £3 £10 £1

Low £1 £10 0.50p 0.50p

This basically shows that if each firm sets a high price they will maximise their profits. You then would talk about prisonners' dilemma. This is firms not knowing the decisions of other firms (because of imperfect knowledge) and how this means that often firms end up in the third quadrant i.e. making 0.50p each. Then you talk about the incentive to 'whistleblow' i.e. revealing the collusive agreement to the competition commission. This will lead to a damaged reputation of the other firm and a fine for the other firm whilst the whistleblower receives no punishment, strengthening its own market power at the expense of the punished firm. You could evaluate that by saying that perhaps the whistleblower's reputation will also be damaged.

Then for general evaluation you basically say that collusion is illegal and it is more likely that firms will compete on a non-price basis because of the price rigidity shown by the kinked demand curve. The curve outlines that an increase in price will have little effect because of the elasticity of demand which arises from close substitutes in an oligopoly. Also it shows that a decrease in price will reduce output disproportionately because other firms will retaliate, leading to a price war. That could probably get you 16/16. Maybe in need of one more evaluative point.
Will the matrix always have low price and high price as possibe options id there are other options could you tell me
2. (Original post by thestudentoffram)
Will the matrix always have low price and high price as possibe options id there are other options could you tell me
I would say you would always be rewarded for high price low price. However remember that in collusion a better matrix heading would be raise in price and no raise in price as that's actually what happens.

Actually sorry you won't always be rewarded for that. The matrix can also be drawn for revenue, profit or output. Remember that if they both set Low output they would be colluding this is a common mistake in the examiners reports.
3. Guys!! Make sure you know the difference between predatory pricing and limit pricing.

Most books will tell you that they both involve the firm putting prices just below the firms ATC (Average Total Cost) which is right. But to differentiate the two, predatory pricing is used to remove existing rival firms OUT of the market. Limit pricing is used to actually make sure that rivals do not ENTER the market.
4. Guys can someone explain the dead weight loss to society under monopoly to me I don't really get this.
5. Guys for definitions of AR, MR, AC etc. can I just right the formula?
6. (Original post by Dilzo999)
Guys for definitions of AR, MR, AC etc. can I just right the formula?
Yeah - Markscheme says either definition or formula - so u shud b k

and dont write AR in exam when explaining it - always say Average revenue
7. (Original post by aminkaram)
I would say you would always be rewarded for high price low price. However remember that in collusion a better matrix heading would be raise in price and no raise in price as that's actually what happens.

Actually sorry you won't always be rewarded for that. The matrix can also be drawn for revenue, profit or output. Remember that if they both set Low output they would be colluding this is a common mistake in the examiners reports.
Thank you ,but the at the end setting low output is setting a high price so its the same at to set a low ouput as to set a high price and the same is true for high output and low price so therefore the high and low price one should always be the diagramm to draw ,right? If they ask you to refer to game theory
8. (Original post by thestudentoffram)
Thank you ,but the at the end setting low output is setting a high price so its the same at to set a low ouput as to set a high price and the same is true for high output and low price so therefore the high and low price one should always be the diagramm to draw ,right? If they ask you to refer to game theory
Yes it's the same diagram. I'm just saying that be careful of the slight variations depending on whether you tend to draw it with price or output. High price is collusion and low output is collusion. Lots of people mistakenly say high output is collusion. I myself always draw the matrix with price.
9. Guys for the purpose of this exam we are assuming that the competition commission is a regulator right???
10. (Original post by aminkaram)
Guys for the purpose of this exam we are assuming that the competition commission is a regulator right???
are the governments not the regulators, and in terms of intervention would act as a surrogate for competition??
11. (Original post by joelharniman)
are the governments not the regulators, and in terms of intervention would act as a surrogate for competition??
But regulators also act as a surrogate for competition.
12. Guys I know the shut down point is when AR/Price is greater than the AVC but what do you actually define? AVC? AR? Or do you just explain and knock out?
13. (Original post by Dilzo999)
Guys I know the shut down point is when AR/Price is greater than the AVC but what do you actually define? AVC? AR? Or do you just explain and knock out?
Here's how you pick up the marks in most MCQ's. Firstly give the formulae for AVC and AR (there may be one mark for this and it only takes 5 seconds). Then define the shutdown point for 1 mark(AR = AVC). Then say they will only exit if AR < AVC because as long as AR > AVC they can make a contribution to their fixed costs which have to be paid even if they leave. This should easily get you the marks but if you're still in doubt add the fact that there is scope for long run profits to be made since all costs are variable in the long run
14. (Original post by Dilzo999)
Guys I know the shut down point is when AR/Price is greater than the AVC but what do you actually define? AVC? AR? Or do you just explain and knock out?
Shut-down point is at
This is when the firm is making a loss in the short-run, thus should shut-down.
You can just do a simply definition of both I suppose.
AVC = (TC-TFC)/Q, such as wages and raw materials
AR = TR/Q

If you're attempting a MCQ, I think the definitions only stand 1 mark.
15. Hey guys, regarding non-pricing competition, what are your most common strategies?

How would you evaluate the non-price strategies? Would opportunity cost and the general cost (expensive) of the scheme be an effective evaluation?
16. If anyone is willing to pay me £2 by Paypal, I can send them 25 micro economic essays, which I bought from economics help for £4. I've also got the macro ones.
17. (Original post by areddishherring)
Hey guys, regarding non-pricing competition, what are your most common strategies?

How would you evaluate the non-price strategies? Would opportunity cost and the general cost (expensive) of the scheme be an effective evaluation?
What's BOGOF?

You could also mention the fact other firms may utilise similar non-price strategies, rendering them ineffective.
18. (Original post by Livaren)
If anyone is willing to pay me £2 by Paypal, I can send them 25 micro economic essays, which I bought from economics help for £4. I've also got the macro ones.
Can you send me a couple first before i plan on paying. I just want to see how they look
19. can anyone help me calculate an index jan 2012 question 1?

edit: sorry i posted in the wrong thread I thought this was the aqa economics thread!
20. (Original post by mhassan)
Can you send me a couple first before i plan on paying. I just want to see how they look
I have got the macro essays!! Just PM ur mail il send it !!

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