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The document is an economics exam paper containing 8 parts with multiple sub-questions about firm behavior and market structures. It provides context that the widget industry in Laurania exhibits characteristics of an oligopoly and one firm engages in price discrimination. The questions assess understanding of concepts like concentration ratios, monopoly power, diminishing returns, costs, and price discrimination. Figures are referenced but not included.

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Date Marks Available Reference Code Level Paper Time Zone Command Term Question Number Adapted From

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42 views5 pages
The document is an economics exam paper containing 8 parts with multiple sub-questions about firm behavior and market structures. It provides context that the widget industry in Laurania exhibits characteristics of an oligopoly and one firm engages in price discrimination. The questions assess understanding of concepts like concentration ratios, monopoly power, diminishing returns, costs, and price discrimination. Figures are referenced but not included.

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IB DP Economics Examination

Original Title

21M.3.HL.TZ0.3

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The document is an economics exam paper containing 8 parts with multiple sub-questions about firm behavior and market structures. It provides context that the widget industry in Laurania exhibits characteristics of an oligopoly and one firm engages in price discrimination. The questions assess understanding of concepts like concentration ratios, monopoly power, diminishing returns, costs, and price discrimination. Figures are referenced but not included.

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© All Rights Reserved
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42 views5 pages

Date Marks Available Reference Code Level Paper Time Zone Command Term Question Number Adapted From

Uploaded by

ousoulegrand
The document is an economics exam paper containing 8 parts with multiple sub-questions about firm behavior and market structures. It provides context that the widget industry in Laurania exhibits characteristics of an oligopoly and one firm engages in price discrimination. The questions assess understanding of concepts like concentration ratios, monopoly power, diminishing returns, costs, and price discrimination. Figures are referenced but not included.

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Date May 2021 Marks available 2 Reference code 21M.3.HL.TZ0.

3
Level Higher level Paper Paper 3 Time zone Time zone 0
Command term Outline Question number 3 Adapted from N/A

Question

Note that a widget is an imaginary product.


In the country of Laurania, the widget industry operates as an oligopoly. The Minister for Finance
is worried that the firms in the industry might abuse their power by acting together as a monopoly,
and has said that the industry’s concentration ratio is cause for concern.

A firm operates under conditions of diminishing returns.

The demand curve faced by firms in the widget industry is downward sloping.

Figure 3 shows the marginal cost (MC) curve, the average variable cost (AVC) curve and the

average total cost (ATC) curve for a firm in the widget industry.
Figure 3
One firm in the widget industry uses the practice of price discrimination, charging a lower price to

one group of consumers than to another group, even though there is no difference in the cost of

supplying to each group.

a. Outline how a concentration ratio might be used to identify an oligopoly. [2]

b. Using a diagram to support your answer, explain how monopoly power can create a welfare

loss. [4]

c. State two government responses to the abuse of monopoly power. [2]

d. It has been observed that the law of diminishing returns operates in the widget industry.
Outline the law of diminishing returns. [2]
e.i. Sketch the marginal product (MP) and average product (AP) curves for this firm. [2]

e.ii. Sketch the total product (TP) curve for this firm. [1]
f.i. Sketch the marginal revenue (MR) curve for firms in the widget industry. [1]

f.ii. Sketch the total revenue (TR) curve for firms in the widget industry. [1]

g.i. Calculate the firm’s total variable costs if output is 20 000 widgets per month. [1]

g.ii. Identify the level of output at which the firm would achieve productive efficiency. [1]

g.iii. Calculate the firm’s monthly total fixed costs if output equals 50 000 units per month.[2]
h.i. State two conditions necessary for price discrimination to take place. [2]

h.ii. Using a diagram (or diagrams), explain why a profit maximizing firm might charge a higher

price in one market than in another. [4]

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