MICROECONOMICS REVISION WORKSHET
JUNE 2024
Name TWO types of costs that are used to calculate the total costs of a firm.
…
(2x1) (2)
•
Variable ✔
•
Fixed
Name any TWO examples of a perfect market.
•
Agricultural sector ✔
•
Stock exchange ✔
•
Foreign exchange market ✔
Give any TWO examples of fixed cost.
(2x1) (2)
(2x1) (2)
•
Insurance ✔
•
rent / lease contracts / property taxes ✔
•
salaries ✔
Name any TWO objectives of the competition policy.
•
Prevent monopolies from abusing their power ✔
•
Regulate formation of mergers and acquisitions
who wish to exercise market power ✔
•
To stop firms from using restrictive practices
like fixing prices, dividing markets. ✔
(2)
Name any TWO bodies responsible for regulating competition in South Africa.
……
(2)
•
Competition commission ✔
•
Competition tribunal ✔
•
Competition appeal court. ✔
Mention any TWO revenues that incur in a business.
1
(2)
•
Total revenues ✔
•
Marginal revenues ✔
•
Average revenues ✔
Why do businesses in the perfect market structure only make economic profit
in the short term?
(1X2) (2)
•
Perfect market entry is free, in the long run, new firms/businesses would enter
the market which then rises the competition, the rises in market competition
shrink/reduce long run profits. ✓✓
With which market structure can these costs and revenues be associated? (1)
•
Perfect Competition/Perfect Market 
At what level of output will the firm be making normal profit?
•
15 
Briefly describe the term total revenue.
•
(1)
(2)
Total revenue is the total income received from the sale of goods and services
when price is multiplied by quantity. 
Why does the above market’s profit disappear in the long run?
•
The entry of new firms increases the perfect market competition which
decrease sales for individual firms.
•
Short run profits attract new rivalries.
Calculate the profit/loss (b) from the table above. Show ALL calculations.
Total Revenue/TR– Total Cost/TC ✓
= 200 - 300 ✓
= - 100 ✓ Loss/Economic Loss ✓
2
(2)
(4)
Study the following extract and answer questions that follow
(1)
(1)
(2)
(2)
Name the institution responsible for investigating unethical competitive
behaviors in markets.
•
1)
Competition Commission. ✓
Which institution’s role in the competition policy is similar to that of the High
Court?
(1)
•
The Competition Appeal Court ✓
Briefly explain the term collusion.
•
(2)
An arrangement between businesses with the aim of limiting competition
between them by fixing prices. ✓✓
What do the South African government want to achieve with the competition
policy?
(2)
•
promote the efficiency of the economy (its primary aim). ✓✓
3
•
provide consumers with competitive prices and a variety of products. ✓✓
•
encourage South Africa to participate in world markets and accept foreign
competition in South Africa. ✓✓
•
enable SMMEs to participate in the economy. ✓✓
•
to allow the previously disadvantaged to increase their ownership of
businesses. ✓✓
•
promote employment. ✓
How does price fixing disadvantage small and medium enterprises in the fresh
fruit business?
(4)
•
Price fixing will increase the costs of small and medium enterprises resulting
in high prices for consumers. ✓✓
•
High prices will then lead to a decline in customers which will result in
businesses making losses and eventually shutting down. ✓✓
Study the graph below and answer questions that follow
Identify the supply curve for the perfect competitive firm.
•
Marginal cost (MC) ✔
What is indicated by point c?
•
(1)
(1)
Shutdown ✔
Briefly describe the term perfect market.
4
(2)
•
Perfect market is the market structure that exist when there are many buyers
and sellers with none of them having an influence over the price. ✔✔
Why are variable costs important on determining a firm’s survival in the
market?
….
(2)
•
Variable costs are important because each firm has an influence over them
unlike fixed costs. ✔✔
•
The failure to cover variable costs for certain products clearly indicate that it
must exit the market or stop producing a product. ✔✔
Why does a perfect competitive firm face by a flexible equilibrium?
(4)
•
Each perfect competitive firm is a price taker, it does not have an influence
over the price. ✔✔
•
The price is determined by market forces. The change in a market prices
changes a firm’s equilibrium position. ✔✔
•
The increase in a market price pushes a firm’s equilibrium up while a
decrease in price pushes a firm’s equilibrium down. ✔✔
Use a graph of total cost (TC) and total revenue (TR) to explain profit
maximisation in a perfect market.
(8)
•
At all points where total revenue (TR) is above total cost (TC), the firm is
making a profit. ✓✓
•
At all points where total cost (TC) is above total revenue (TR), the firm is
making a loss. ✓✓
•
The gap between TR and TC represents profit.✓✓
•
Profit is maximised when the gap between TR and TC is the greatest. ✓✓This
occurs at quantity number 4. ✓✓
(Accept other correct and relevant explanation)
5
Max.4
(8)
Why are equilibrium positions for a perfect competitor not sustainable in the
long run?
(8)
•
Profits are signals for the entry of new businesses and extension of current
businesses✓✓
•
New technology develops daily leading to increased supply in the market✓✓
•
The quantity offered by businesses in the market increases (indicating mass
production) ✓✓
•
The increase in the supply leads to a decrease in price due to lower cost per
unit✓✓
•
All businesses in the industry will make normal profit and produce at the
minimum of the long-term average cost curve✓✓
•
The economic loss will lead to some businesses leaving the market and the
supply will decrease. ✓✓
•
The decrease in supply will lead to an increase in price until it is at the same
level as the long run average cost. ✓✓
•
If businesses can turn their losses to profit, they will make normal profits over
the long run✓✓
(Accept any other correct relevant response).
Evaluate the success of the Competition Act in achieving its objectives.
6
(8)
Successful
•
Provides consumers with competitive prices and a variety of products ✔✔ e.g.
MTN and Vodacom
•
DSTV has been found guilty of price fixing and fined R180 million by the
Competition Commission✔✔
•
Tiger Brands was fined R8 million for collusion in the milling industry.✔✔ SA
banks face market fines for price fixing and collusion✔✔
•
Fruit and Vegetable producer fined for price fixing and collusion✔✔
•
Encouraged South Africans to participate in world markets and accept foreign
competition✔✔
•
Enables SMMEs to participate in the economy✔✔
•
Enables previously disadvantaged groups to increase their ownership in the
business sector ✔✔
•
Various anti-competitive practices have been investigated with positive
outcome. ✔✔
•
Currently, a number of big insurance companies in South Africa are under
investigation over being alleged of fixing their premiums. ✔✔
Failure
•
Fines imposed on firms that have been found guilty are too lenient. ✔✔
•
It has failed to protect consumers over aggressive prices. Prices have been
detrimental to economic growth and development over the past two years.
✔✔
•
State owned monopolies remain as main suppliers of some products such as
electricity which has contributed to high level of productive and allocative
inefficiency. ✔✔
7
Explanation of graph:
•
In the above diagram, the market price is fixed at R 80. ✓✓
•
If MR < MC, profits will decrease, and if MR > MC, profits will increase. ✓✓
•
The individual producer cannot adjust the price, as he must adjust in line with
the industry / competition. ✓✓
8
•
Profit maximization occurs where MR = MC/If MR = MC, then marginal profit =
zero (0) ✓✓
SECTION C: ESSAY
•
With the aid of graphs, discuss in detail equilibrium positions for a perfect
competitive firm.
•
(26)
-
Economic profit.
(10)
-
Economic loss.
(8)
-
Normal profit.
(8)
How does high market competition promote wellness of consumers?
(10)
INTRODUCTION
Perfect market is a market structure that exist where there are many buyers and
sellers with none of sellers neither buyers have an influence over the price.
(accept any other correct relevant response)
ECONOMIC LOSS
•
Economic loss prevails when revenues earned are lower than costs incurred
in the business. ✓✓
•
Average cost curve turns above average revenue curve. ✓✓
•
Average costs or total costs are greater than average revenues or total
revenues (AC>AR or TC>TR). ✓✓
•
The economic loss condition indicates that less revenues are earned after
sales as compared to costs incurred during the production process. ✓✓
(accept any other correct relevant response)
ECONOMIC PROFIT
9
•
Economic profit prevails when revenues earned are greater than costs incurred
in the business. ✓✓
•
Average revenue curve turns above average cost curve. ✓✓
•
Average revenues or total revenues are greater than average costs or total
costs (AR>AC or TR>TC). ✓✓
•
The economic profit condition indicates that more revenues are earned after
sales as compared to costs incurred during the production process. ✓✓
•
Economic profit is known as a supernormal profit✓
•
Profit = AR – AC x Q or TR-TC
(accept any other correct relevant response)
NORMAL PROFIT
•
Normal profit prevails when revenues earned are equal to costs incurred in the
business. ✓✓
•
Average revenue curve turns on the average cost curve. ✓✓
•
Average revenues or total revenues are equal to average costs or total costs
(AR=AC or TR=TC). ✓✓
•
The normal profit condition indicates that revenues earned are equal to costs
incurred during the production process. ✓✓
•
Normal profit is known as break-even as the firm is not making a profit neither
a loss. ✓✓
•
These are minimum earnings that prevent a firm from leaving the market. ✓✓
(accept any other correct relevant response)
10
ADDITIONAL PART
How does high market competition promote wellness of consumers?
(10)
Perfect market improves wellness of consumers because:
•
High market competition results to low market prices which benefit consumers
to afford goods and services as they are exposed to competitive prices. ✓✓
•
Consumers are exposed to high / variety of choices within the perfect market.
✓✓
•
High market competition encourages high level of innovation and creativeness
thus promoting quality of goods and services✓✓
•
Efficiencies are achieved, goods and services are supplied at the right quality,
right quantity, and the right price. ✓✓
•
More jobs are created which reduces unemployment rate and increase
standards of living. ✓✓
(accept any other correct relevant response)
CONCLUSION
The complete market information results to consumers, producers and workers
making well informed decisions about what, where and at what price should they buy
goods and services. ✓✓
(accept any other correct relevant response)
11
Identify the letter that represents the elastic part of the graph.
(1)
•
F
Give ONE example of an industry operating under this type of market
structure. (1)
•
Car 
•
Steel 
•
Film 
•
Television 
•
Cell phone 
•
Gas 
•
Banks✓
Briefly describe the concept of overt (explicit) collusion.
(2)
•
Is open and happens when oligopolies formally meet to decide on prices and
production 
•
This type of collusion is illegal and is normally investigated by the Competition
Commission. 
12
Why are firms in this market structure reluctant to participate in price
competition?
•
It will cause other oligopolists to cut their prices and profits. / They want to
increase their market share so that they can sell more products and increase
their profits 
Use the graph above to explain why the oligopoly would not decrease its price
to increase his market share.
•
Oligopolies are interdependent as each seller is influenced by the actions of
other sellers. 
•
If an oligopoly decreases its prices, its competitors will all do the same. 
•
Any profit gains will quickly disappear because of competition. 
•
The above will cause the demand curve to be inelastic, because the reduction
in price will result in a smaller percentage change in the quantity demanded.

Study the extract below and answer questions that follow
13
Identify the inelastic segment of the demand curve.
(1)
14
•
ED1 / below the kink / second segment ✔
Name the demand curve depicted.
•
(1)
Kinked curve ✔
Briefly describe the term tacit collusion.
(2)
•
The behaviour by firms is motivated by an arrangement that is not formal /
•
Unspoken actions between oligopolistic firms that are likely to minimise a
competitive response /
•
When a dominant firm increase its price and hope that its rivals will see it as a
market signal and increase their prices ✔✔
How does the profit of an oligopoly differ from the profit of a monopolistic
competitor in the long run?
•
(2)
The oligopoly will make economic profit over the long run compared to a
monopolistic competitor making a normal profit only ✔✔
Why will the producer be reluctant to decrease his price from R40,00 to
R28,00? Show all calculations.
(4)
•
The producer's revenue will decrease. ✔✔ At a price of R40,00 the producer
will earn R28 000 (40 x 700) ✔✔ compared to an income of R22 400 (28 x
800) at a price of R28 ✔✔
•
At R40,00 the revenue would be R28 000 ✔✔ compared to R22 400 at a price
of R28,00. ✔✔ Therefore the producer's revenue will decrease ✔✔
ESSAY ASSESSMENT
•
•
Discuss oligopoly in detail with regard to concept, behaviour and
demand curve.
(26)
Why has Eskom as a monopoly not achieved economic profit in the
long run, although this is expected of a monopoly?
(10)
Introduction
•
Oligopoly is an imperfect market structure that exists when there are few
large firms and many buyers. ✔✔
Body: Main Part
•
Small number of large firms dominate the market ✔✔
15
•
Oligopoly firms are able to influence the supply of a product or service to a
market ✔✔
•
By controlling the supply of the product or service on the market, oligopolies
aim to keep its prices and profits high ✔✔
•
If the market is dominated by two firms, it is regarded as duopoly ✔✔
PURE OLIGOPOLY ✔
•
Pure oligopoly is the oligopoly that produces homogenous products or
services such as petroleum industry ✔✔
DIFFERENTIATED OLIGOPOLY ✔
•
Differentiated oligopoly is the oligopoly that produces differentiated products
such as banking industry ✔✔
•
Different firms produce goods that have their own distinguishing
characteristics, yet all of them are close substitutes of each other ✔✔
Mutual dependance✔
•
Interdependence means that actions of one firm affect the actions of other
firms ✔✔
•
Each seller is influenced by the actions of other sellers✔✔
•
Decisions of one seller will influence the decisions that other sellers make ✔✔
•
The decisions regarding prices, quantities and marketing depends on what it
thinks the other oligopolists in the market is going to do in response to his
actions ✔✔
•
Competitors may react in many ways to a price reduction by a competitor ✔✔
•
A firm considers the action and reaction of the rival firms while determining its
price and output levels ✔✔
•
A change in output or price by one firm evokes reaction from other firms
operating in the market ✔✔
•
It is therefore impossible to formulate a single theory for price and production
decisions ✔✔
•
The general behaviour of oligopolists is not predictable✔✔
Control over the price✔
•
Each oligopoly firm has considerable control over prices, especially when they
get involved in joint decision-making ✔✔
16
•
This will result in abnormally high prices and profits ✔✔
•
Oligopolies are characterised by price rigidity because if one firm decreases
his prices, competitors will also decrease theirs. ✔✔
•
A price decrease by one firm can initiate a price-war which results to firms
avoiding competing over the price. ✔✔
Collusion✔
•
Collusion is very common amongst oligopolies; it occurs when suppliers within
the market manipulate prices and quantities that they sell in order to maximise
their profit ✔✔
•
Collusive behaviour reduces market competition and increase inefficiency.
•
It occurs in two ways namely implicit and explicit; where stealing or copying
competitor’s ideas is referred as an implicit / hidden / tacit collusion✔✔
•
Formal agreements on price and production arrangements is referred as
explicit / overt collusion✔✔
Kinked demand curve
•
Oligopoly market is faced by a kinked demand curve ✔✔
•
Kinked demand curve is the demand curve with two segments ✔✔
•
The top segment is relatively elastic which indicates that consumers are very
quick to react to the increase in price if other firms maintain lower prices ✔✔
•
The bottom segment is relatively inelastic which indicates that consumers are
less sensitive to the decrease in price if all producers have lowered their
prices ✔✔
•
Consumers find no incentive to leave their suppliers for other competitors ✔✔
•
The top segment is the elastic part of the demand curve. ✔✔ Price changes
and output have a huge impact on the creation of this demand curve.
•
As much as oligopoly firms are very much interdependent, their actions are
not always guaranteed if an individual competitor increases prices. ✔✔
•
Reactions are more guaranteed if the price-output decision is made through
cartels ✔✔.
•
If one firm increases the price, competitors are likely to keep their prices low.
✔✔
•
Price war is a common feature of oligopoly firms. ✔✔
17
•
Firms are tactical, they lower their prices to gain more market share from
competitors. ✔✔
•
Lowered prices might create an environment that is non-profitable for
competitors. ✔✔
•
However, oligopoly firms quickly react to protect their profits if one firm have
made profitable decision at their expense. ✔✔
Additional Part
Why has Eskom as a monopoly not achieved economic profit in the long run,
although this is expected of a monopoly?
•
Eskom is unable to service its debts from its earnings, forcing it to borrow
more or get government bail-outs✔✔
•
Corruption, e.g., irregular tenders to suppliers by taking bribes in the provision
of sub-standard coal. ✔✔
•
Lack of proper leadership and corporate governance – expanded
electrification programme was not accompanied by infrastructure
development, e.g., building of new power stations✔✔
•
Lack of maintenance of current infrastructure, e.g., breakdown of machinery is
costly when not repaired in time. ✔✔
•
Cable theft, Eskom had to replace cables at high cost. ✔✔
•
Eskom is in a debt reliant liquidity situation, employee benefit costs increasing
and the continuing new build programme ✔✔
•
New power stations are not fully functional, and are costing a lot more than
originally budgeted for (Medupe and Khusile)
•
Load-shedding is implemented because financial strain resulting in the
inability to service debt, e.g. cannot pay suppliers of coal. ✔✔
•
Load-shedding reduces revenue collection when electricity is off. ✔✔
•
Culture of non-payment in certain areas lead to a loss of revenue. ✔✔
•
Illegal connections lead to insufficient revenue collection. ✔✔
Conclusion
The market interdependence in oligopoly results to consumer exploitation
since price fixing forces prices up at the expense of consumers. Profits of
natural monopolies are not guaranteed since these state-owned enterprises
are less reliant on profits as they produce public goods and services. ✔✔
…….
(2)
(40)
18
Evaluation monopolistic competition as a market structure
Advantages:
•
Differentiated products – this means more choice for consumers✓✓
•
Firms have incentives to innovate – higher and improving quality of products,
looking for more efficient ways of production, possibly leading to a lower
price✓✓
•
Advertising – usually there is a high level of advertising in monopolistic
competition; this provides consumers with information and hence, lowers
search costs✓✓
Disadvantages:
•
Neither technically nor allocatively efficient – this leads to deadweight welfare
loss – the primary economic problem of allocating resources in the most
efficient way is not solve ✓✓
•
Resources are wasted on e.g. useless packaging ✓✓
•
Large number of firms – that means limited access to Economies of Scale ✓✓
•
Large number of firms – could lead to too much choice for consumers and in
turn to higher search costs ✓✓
•
Advertising – might mislead consumers✓✓
•
Advertising is usually costly; hence, product prices might be higher✓✓
•
No abnormal profits limited innovation and investment in R&D✓✓
(Accept any other correct alternative response)
19
(8)
Give an example of a negative externality.
•
Pollution✔ / substance abuse✔ / traffic congestion✔.
(Accept any other correct relevant response)
Name the shaded area (A) in the graph above.
•
Welfare loss✔ / deadweight✔ / external cost✔ / negative externality✔
Briefly describe the term social cost.
•
Social cost is the cost to society which includes private cost and external cost
/ Combined costs of goods or services to producers and consumers and
society as a whole. ✔✔
(Accept any other correct relevant response)
Explain a lack of information to entrepreneurs as a cause of market failure.
•
A lack of information on costs, availability and productivity of factors of
production will reduce its effectiveness in production / incomplete✔✔ or
inaccurate information leads to incorrect decision making about what, for
whom and how to produce, so resources are wasted. ✔✔
(Accept any other correct relevant response)
Why is the socially optimal output more beneficial to society?
At the socially optimal output companies would pay for the external cost
(externality) which would benefit society, ✔✔ Firms would reduce the production
that will lower the impact of the negative externality on society which is more
beneficial✔✔
20
Identify the curve that represent marginal private benefits on the graph above.
…..
(1)
•
D✓
Name the economic concept represented by the shaded area on the graph
above.
•
(1)
Positive externality/External benefit/ Social benefit / Welfare gain ✓
Briefly describe the term minimum wage.
•
(2)
Minimum wage is a lowest wage legislated by the government that no worker
should be paid below. ✓✓
Why are merit goods such as education and healthcare undersupplied in the
market? ……
•
(2)
Merit goods are highly desirable for social welfare but people are not willing to
pay for them. ✓✓
•
It is difficult for the market to determine external benefits obtained from merit
goods thus resulting to high external costs. ✓✓
How do maximum prices affect the market?
•
Maximum prices result to market shortage. ✓✓
21
(4)
•
Lowest prices discourage producers and cause undersupply which creates
community and collective goods. ✓✓
Examine the impact of income inequality in the economy.
(8)
•
A high level of economic inequality means a higher level of poverty. ✔✔
•
Poverty is associated with increased crime and poor public health which places
a burden on the economy. ✔✔
•
In the face of increasing food prices and lower incomes, support for pro-growth
government policies decline. ✔✔
•
Wealthy citizens maintain disproportionate political power compared to poorer
citizens which encourages the development of inefficient tax structures skewed
in favour of the wealthy. ✔✔
•
Unequal income distribution increases political instability which threaten
property rights, increases the risk of state rejected contracts and discourages
capital accumulation. ✔✔
•
A widening rich poor gap tends to increase the rate of rent seeking and
predatory market behaviors that hinder economic growth ✔✔
•
Growth is suppressed in economically unequal societies by decreasing
availability of investments for human capital ✔✔
Briefly discuss overt collusion and tacit collusion.
(8)
Overt collusion
•
It is when oligopolies collude openly and formally through cartels. ✓✓
•
Cartel It is an association of oligopolistic businesses that comes into existence
in an industry with the specific aim of forming a collective monopoly. ✓✓
•
Cartels control the production of goods and this influences the prices of
products. ✓✓
•
Overt / explicit collusion pertains a formal agreement between businesses
within the pure oligopoly to influence the price or production techniques to
keep their profits high. ✓✓
Tacit collusion
22
•
The behaviour by firms is motivated by an arrangement that is not formal /
Unspoken actions between oligopolistic firms that are likely to minimise a
competitive response. ✓✓
•
Tacit / implicit collusion occurs through price leadership process. ✓✓
•
It does not include any formal agreement between competitors, the market
interdependence creates mutuality where competitors copy each others’
profitable decisions. ✓✓
•
Price leaders are usually the strongest and most dominant business whose
production cost is the lowest but can also be firms that understand market
signals very well without sales dominance. ✓✓
•
Productive efficiency can be achieved if the firm produces at any point along
the PPC. ✓✓
•
That is at any point between A to D. ✓✓
•
Allocative efficiency can be achieved when the IC is tangent to the PPC. ✓✓
•
This occurs at point B in the graph. ✓✓
23
•
Discuss oligopoly in detail with regard to concept, behaviour and demand
curve.
(26)
•
Why has Eskom as a monopoly not achieved economic profit in the long
run, although this is expected of a monopoly?
(10)
Introduction
Oligopoly is an imperfect market structure that exists when there are few large
firms and many buyers. ✔✔
Body: Main Part
•
Small number of large firms dominate the market ✔✔
•
Oligopoly firms are able to influence the supply of a product or service to a
market ✔✔
•
By controlling the supply of the product or service on the market, oligopolies
aim to keep its prices and profits high ✔✔
•
If the market is dominated by two firms, it is regarded as duopoly ✔✔
PURE OLIGOPOLY ✔
•
Pure oligopoly is the oligopoly that produces homogenous products or
services such as petroleum industry ✔✔
DIFFERENTIATED OLIGOPOLY ✔
•
Differentiated oligopoly is the oligopoly that produces differentiated products
such as banking industry ✔✔
•
Different firms produce goods that have their own distinguishing
characteristics, yet all of them are close substitutes of each other ✔✔
Mutual dependance
•
Interdependence means that actions of one firm affect the actions of other
firms ✔✔
•
Each seller is influenced by the actions of other sellers ✔✔
•
Decisions of one seller will influence the decisions that other sellers make ✔✔
•
The decisions regarding prices, quantities and marketing depends on what it
thinks the other oligopolists in the market is going to do in response to his
actions ✔✔
•
Competitors may react in many ways to a price reduction by a competitor ✔✔
•
A firm considers the action and reaction of the rival firms while determining its
price and output levels ✔✔
24
•
A change in output or price by one firm evokes reaction from other firms
operating in the market ✔✔
•
It is therefore impossible to formulate a single theory for price and production
decisions ✔✔
•
The general behaviour of oligopolists is not predictable ✔✔
Control over the price
•
Each oligopoly firm has considerable control over prices, especially when they
get involved in joint decision-making ✔✔
•
This will result in abnormally high prices and profits ✔✔
•
Oligopolies are characterised by price rigidity because if one firm decreases
his prices, competitors will also decrease theirs. ✔✔
•
A price decrease by one firm can initiate a price-war which results to firms
avoiding competing over the price. ✔✔
Collusion
•
Collusion is very common amongst oligopolies; it occurs when suppliers within
the market manipulate prices and quantities that they sell in order to maximise
their profit ✔✔
•
Collusive behaviour reduces market competition and increase inefficiency.
•
It occurs in two ways namely implicit and explicit; where stealing or copying
competitor’s ideas is referred as an implicit / hidden / tacit collusion ✔✔
•
Formal agreements on price and production arrangements is referred as
explicit / overt collusion ✔✔
Kinked demand curve
•
Oligopoly market is faced by a kinked demand curve ✔✔
•
Kinked demand curve is the demand curve with two segments ✔✔
•
The top segment is relatively elastic which indicates that consumers are very
quick to react to the increase in price if other firms maintains lower prices ✔✔
•
The bottom segment is relatively inelastic which indicates that consumers are
less sensitive to the decrease in price if all producers have lowered their
prices ✔✔
•
Consumers find no incentive to leave their suppliers for other competitors ✔✔
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Additional Part
Why has Eskom as a monopoly not achieved economic profit in the long run,
although this is expected of a monopoly?
•
Eskom is unable to service its debts from its earnings, forcing it to borrow
more or get government bail-outs✔✔
•
Corruption, e.g., irregular tenders to suppliers by taking bribes in the provision
of sub-standard coal. ✔✔
•
Lack of proper leadership and corporate governance – expanded
electrification programme was not accompanied by infrastructure
development, e.g., building of new power stations✔✔
•
Lack of maintenance of current infrastructure, e.g., breakdown of machinery is
costly when not repaired in time. ✔✔
•
Eskom is in a debt reliant liquidity situation, employee benefit costs increasing
and the continuing new build programme ✔✔
•
New power stations are not fully functional, and are costing a lot more than
originally budgeted for (Medupe and Khusile)
•
Load-shedding is implemented because financial strain resulting in the
inability to service debt, e.g. cannot pay suppliers of coal. ✔✔
•
Load-shedding reduces revenue collection when electricity is off. ✔✔
•
Culture of non-payment in certain areas lead to a loss of revenue. ✔✔
•
Illegal connections lead to insufficient revenue collection. ✔✔
CONCLUSION
The market interdependence in oligopoly results to consumer exploitation since
price fixing forces prices up at the expense of consumers. Profits of natural
monopolies are not guaranteed since these state-owned enterprises are less
reliant on profits as they produce public goods and services. ✔✔
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