Edexcel A2 Economics Unit 3 – MCQ Book
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A2 Economics Unit 3
Revision : Graphs
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A2 Economics Revision Short Notes
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Edexcel A2 Economics Unit 3 – MCQ Book
Summary of Graphs
In the examination candidates are encouraged to annotate diagrams or draw
diagrams to support their answers, and remember to refer to them in the answer
to ensure the examiner gives you full credit for your work.
This section provides a summary of all graphs that students should be familiar with
when sitting for their A2 Economics Unit 3 paper.
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A2 Economics Revision Short Notes
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Edexcel A2 Economics Unit 3 – MCQ Book
COSTS
SHORT RUN COST CURVES
LONG-RUN AVERAGE
COST CURVE
POSSIBLE SHAPES OF LRAC
MC intersects with AC at the
minimum point of AC,
therefore,
MC = AC
PRODUCTIVE
EFFICIENCY
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A2 Economics Revision Short Notes
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Edexcel A2 Economics Unit 3 – MCQ Book
REVENUE
Where MR = 0 ,
PED = 1 on the AR curve,
And also TR reaches it maximum point!
therefore,
MR = 0
REVENUE MAXIMISATION
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A2 Economics Revision Short Notes
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Edexcel A2 Economics Unit 3 – MCQ Book
PROFITS
When MR = MC, the gap between TR and TC is at their maximum,
therefore,
MR = MC
PROFIT MAXIMISATION
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A2 Economics Revision Short Notes
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Edexcel A2 Economics Unit 3 – MCQ Book
PERFECT
COMPETITION
SHORT RUN PROFITS
SHORT RUN LOSSES
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A2 Economics Revision Short Notes
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Edexcel A2 Economics Unit 3 – MCQ Book
PERFECT
COMPETITION
LONG RUN
Long-run equilibrium position of a firm in an industry facing
short-term super normal profits
Long-run equilibrium position of a firm in an industry facing
short term losses
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A2 Economics Revision Short Notes
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Edexcel A2 Economics Unit 3 – MCQ Book
LONG RUN EQUILIBRIUM
ALLOCATIVE EFFICIENCY
MC = P
AC = MC
In perfect competition allocative efficiency is
achieved in the short-run as well as in the
long- run
PRODUCTIVE EFFICIENCY
In perfect competition allocative efficiency is
achieved only in the long-run
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A2 Economics Revision Short Notes
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Edexcel A2 Economics Unit 3 – MCQ Book
MONOPOLY
THERE IS NO ALLOCATIVE OR
PRODUCTIVE EFFICIENCY IN
A MONOPOLY.
HOWEVER, PRODUCTIVE EFFICIENCY
CAN BE ACHIEVED BY COINCIDENCE
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A2 Economics Revision Short Notes
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Edexcel A2 Economics Unit 3 – MCQ Book
NATURAL
MONOPOLY
If the monopoly chooses to maximise profits, it will set MR=MC, choose
output Qm and set price at Pm.
If such firms are forced to set a price equal to MC, they would make
losses.
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A2 Economics Revision Short Notes
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Edexcel A2 Economics Unit 3 – MCQ Book
PERFECTLY COMPETITIVE INDUSTRY Vs.
PROFIT MAXIMISING MONOPOLY
Monopoly
Perfect Competition
Profit Maximisers
Yes
Yes
Allocatively efficient
No
Yes
Productively efficient
No
Yes
Price
Prices are higher under
monopoly compared to
perfect competition
Prices are lower under perfect
competition compared to
monopoly
Quantity
Quantity is lower under
monopoly compared to
perfect competition
Quantity is higher under perfect
competition compared to
monopoly
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A2 Economics Revision Short Notes
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Edexcel A2 Economics Unit 3 – MCQ Book
MONOPOLISTIC
COMPETITION
SHORT-RUN
Profits made in the shortrun attract more firms into
the market, which will:
LONG-RUN
Reduce demand (i.e.
AR)
Increase PED (i.e.
flatten the AR line)
Increase ATC due to
higher advertising
and promotion as a
result of competition
Up until supernormal
profits are driven away.
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Edexcel A2 Economics Unit 3 – MCQ Book
OLIGOPOLY
Suppose, Price is currently set at P1 and Output at Q1, in the industry, and
a firm is trying to decide whether to alter price…
If the firm increases price to P2 they will face an elastic demand curve
(Dig) and thus a large fall in Output to Q1, as the other firms in the industry
would ignore the action of the firm (as it is a non-threatening move that
gives market share to the other firms) and as a result the firm would lose its
existing customer base to its competitors.
If the firm decreases its price to P3 they will face an inelastic demand
curve (Dcop) and thus a small fall in Output to Q3, as the other firms in the
industry would copy the action of the firm (as it is a threatening move that
takes away market share from the other firms, and they are likely to copy
in order to preserve their market position) and as a result the firm would
not gain too many customers from its competitors.
Putting these two demand curves together the firm in an oligopoly would
face a kinked demand curve shown by the continuous line AR.
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A2 Economics Revision Short Notes
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Edexcel A2 Economics Unit 3 – MCQ Book
PRICE DISCRIMINATION
How to draw the Price Discrimination diagram:
1.
2.
3.
4.
5.
6.
7.
Draw:
(i)
Market A – with inelastic demand – i.e. a steep AR and MR
(ii)
Market B – with elastic demand – i.e. a flat AR and MR
(iii)
Combined Market – combine AR and MR of Market A and Market B
Draw MC in the combined market – MC must cut the MR after the kink
Find MR=MC in the combined market to find MC* and Q* - extend Q* to
AR to find P*
Extend P* to market A (PA*) and B (PB*) and find Q* in market A(QA*) and
B(QB*)
Extend MC* to market A and B
Find the point where MC* line cuts MR in each market to find the market Q
and P
If drawn correctly:
PA > PA*
QA < QA*
in the Inelastic
Demand Market
PB < PB*
QB > QB*
in the Elastic
Demand Market
i.e. a higher price is set in the inelastic market (Market A) and a lower price
is set in the elastic market (Market B)
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A2 Economics Revision Short Notes
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Edexcel A2 Economics Unit 3 – MCQ Book
THINGS TO REMEMBER
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A2 Economics Revision Short Notes
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Edexcel A2 Economics Unit 3 – MCQ Book
£
MC
AC
P1
MR = MC
MR
0
Q1
AR=D
Output
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A2 Economics Revision Short Notes
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