TEACHER GUIDE GRD 11

1.1 Various options are provided as possible answers to the following

questions.
Choose the answer and write only the letter (A–D) next to the question
number.

1.115 D
1.1.1 A 1.1.16 A
1.1.2 C 1.1.17 D
1.1.3 B 1.1.18 B
1.1.4 A 1.1.19 C
1.1.5 C 1.1.20 D
1.1.6 C 1.1.21 B
1.1.7 B 1.1.22A
1.1.8 B 1.1.23B
1.1.9 B 1.1.24D
1.1.10 C 1.1.25D
1.1.11 D 1.1.26 A
1.1.12 B 1.1.27 C
1.1.13 A 1.1.28 A
1.1.14 C 1.1.29 D

1.2 Choose a description from COLUMN B that matches the item in

COLUMN A. Write only the letter (A-I) next to the question number
(1.2.1 –1.2.12) in the ANSWER BOOK.
MEMO
1.2.1 K Comparison between prices of good
1.2.2 I Increase in income leads to smaller quantities demanded of these
goods.
1.2.3 C Goods and services are traded.
1.2.4 A Able to influence the market price through changing the quantity it
supplies to the market.
1.2.5 B Barriers to enter the market.
1.2.6 L Making as much profit as possible.
1.2.7 D Period long enough to change the Inputs.
1.2.8 G goods offered for sale at a given price
1.2.9 F barriers protect them from competition by other businesses.
1.2.10 E Few large sellers dominating the market
1.2.11 H Legal barrier to entry
1.2.12 J Facilitates the purchase and sale of services of factors of production,
which are inputs like labour, capital, land and entrepreneurship that are used by a
firm to make a finished product.
1.2.13 Q Appear when a country can produce more of a product than another
country using the same amount of resources 1.2.14 N Businesses set and
agree on prices
1.2.15 Q Market structure dominated by two firms

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1.2.16 M Any market that does not have all the characteristics of a perfect
market
1.2.17 O Powerful competitors try to take over each other’s market share by
progressively reducing prices

1.3 Provide the economic term/concept for each of the following

descriptions. Write only the term/concept next to the question number.
No abbreviations, acronyms and examples will be accepted.

1.3.1 Relative price

1.3.2 Monopolistic competition
1.3.3 Short run
1.3.4 Normal profits
1.3.5 Product market
1.3.6 Inferior goods
1.3.7 Kinked
1.3.8 Non-price competition
1.3.9 Competition
1.3.10 Absolute price
1.2.11 Factor market
1.3.12 Market share
1.3.13 Heterogeneous/ differentiated
product
1.3.14 Monopolistic competition
1.3.15 Law of demand
1.3.16 Cartel / Formal collusion

1.3.17 Total utility

1.3.18 Monopoly
1.3.19 Monopolistic competition
1.3.20 Perfect competition
1.3.21 Profit- maximization quantity
1.3.22 Oligopoly
1.3.23 Variable cost
1.3.24 Total cost 1.3.25
Duopoly
1.3.26 Monopoly
1.3.27 Monopoly
1.3.28 Long run
1.3.29 Marginal utility
1.3.30 Short run
1.3.31 Economic Profits

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SECTIOB

QUESTION 2:

HINT: When the question requires you to “list” or “name”, you need not write a sentence
but merely one or two words. This MUST be done in bullet form. This types of questions
are applicable for 2.1.1, 3.1.1 and 4.1.1

2.1 Name any TWO monopoly industries in South Africa

• Eskom
• Rand Water
(Accept any other correct relevant response) (2 x 1) (2)

2.2 Give any TWO examples of monopolistic markets.

• Restaurants
• Hairdressers
• Petrol stations
(Accept any relevant example) (2x1) (2)

2.3 List any TWO kinds of profit.

• Accounting profit
• Economic profit
• Normal profit (2x1) (2)

2.4 Name any TWO factors that can cause a shift of the demand curve.
• Price of substitutes
• Price of complementary goods
• Income of consumers
• Tastes and preferences of consumers
• The size of the population
• Fashion
• Advertising
• Economic climate (2x1) (2)

2.5 Name (Give/List) TWO characteristics of perfect markets.

• Price takers
• Homogenous products
• Normal profit in short and long term
• Many buyers
• Many sellers
• Freedom of entry/exit
• Mobility of factors of production
• Perfect information
• No collusion
• Unregulated market
• No preferential treatment (no discrimination)
• Efficient transport and communication

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(Accept any relevant, correct characteristics) (2 x 1) (2)

2.6 List TWO objectives of business.

• To make profit
• Survival of the business
• Maximising revenue
• Maximising sales
• Setting targets for growth (2 x 1) (2)

2.7 Name any TWO monopoly industries in South Africa

• Transnet / Prasa
• Eskom
• SAA
• Rand water
• South African Breweries
• De Beers’s Central Selling Organisation (CSO)
(Any 2 X 1 = 2)
2.8 List any TWO characteristics of perfect markets.
• Products are homogeneous
• Many buyers and sellers
• Buyers and sellers have full knowledge of the market conditions
• Free entry and exit
• Products have close substitutes (2 x 1 2)
2.9 Give any TWO examples of monopolistic markets.
• Many buyers and sellers
• Differentiated product or heterogeneous product
• Entry into market fairly easy (Any 2 X 1 = 2)
2.10 Give TWO derivatives calculated from Total Revenue
• Marginal revenue
• Average revenue (2 X 1 = 2
2.11 Name any TWO averages used to determine economic profit.
• Average revenue
• Average cost (2 x 1) (2)

2.12 Name TWO barriers that prevent new businesses from entering a monopoly
market.
• Natural barriers
• Cost barriers
• Legal barriers
• International distance (Any 2 X 1 = 2)
2.13 Give any TWO examples of fixed costs in the short-run.
• Factory rent
• Salaries
• Interest expenses
• depreciation (Any 2 X 1 = 2)
2.14 Name any TWO Oligopoly industries in South Africa.
• Auto industry
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• Commercial air travel

• Steel industry
• Cement industry
• Cell phone network
• Banking sector
(Any 2 X 1 = 2)

QUESTION 3:
HINT: These types of questions are applicable for 2.1.2, 3.1.2 and 4.1.2
3.1 What would encourage a producer to continue increasing its
production?
• Business will want to produce where additional income received from a unit is equal
to the additional cost of producing the unit (1 x 2) (2)

3.2 How does an increase in demand affect the price of a good/service?

• A higher demand for a good/service will attract the prices and pull them up –
goods/services will become more expensive for the consumer.
(Accept any other correct relevant response) (1x2) (2)

3.3 Why is it important for businesses to set goals?

• Setting goals helps the business to be able to define the direction it will take – goals
should align with the business’s mission and vision statements
(Accept any other correct relevant response) (1x2) (2)

3.4 What makes it impossible for an individual producer in perfect

competition to make an economic profit in the long run?
• Free entry, when more firms enter, supply shifts to the right, causing the market price
to drop.
(Accept any other correct relevant response) (1x2) (2)

3.5 How is non-price competition an advantage for a perfect competitor?

• The perfectly competitive firms are price takers, and the products are homogenous, it
is not necessary for producers to incur expenditure on advertisement to promote
sales.
(Accept any other correct relevant response) (1x2) (2)

3.6 Why is the demand curve for a perfect competitor horizontal?

• The individual is a price taker, and his output does not affect the market price.
(Accept any other correct relevant response) (1x2) (2)

3.7 Why is it impossible for a monopoly to collude?

• It is impossible for monopoly to collude because it is a one firm; collusion involves
two firms or more.
(Accept any other correct relevant response) (1x2) (2)

3.8 Why is the demand curve of a monopolist sloping downwards?

• The monopolist is the only supplier of the product in the market, the demand curve
that confronts the monopolist is that of the market as a whole that is, the market
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demand curve which slope downwards from left to right.

(Accept any other correct relevant response) (1x2) (2)

3.9 What is the implication of the Law of supply?

• The law of supply states that if the price of a product increases, the quantity supplied
will increase and if the price of a product decreases, the quantity supplied will also
decrease.
• There is a direct relationship between the price of a product and the quantity
supplied of that product
(Accept any other correct relevant response) (1x2) (2)

3.10 How do product and factor markets relate to one another?

Factors of production are bought by producers from the factor market to produce goods and
services which are sold in the product market.
(Accept any relevant explanation.) (2)

3.11 Explain what is meant by excess demand.

It is a situation in which the market demand for a commodity is greater than its market
supply, thus causing its market price to rise. (2)

3.12 Explain the role of the monopoly as a price maker

The monopolist is considered a price maker because it is able to influence the market price
by changing the quantity available to the market. ✓✓ (2)

3.13
Why does the average fixed-cost curve slope downwards from left to
right?
Because its value decreases for each quantity produced (1 x 2) (2)

3.14 How do imperfect market structures occur?

Imperfect markets occur when one of the conditions of perfect markets is not met.

(Accept any relevant correct response.) (2)

3.15 Why will consumers benefit more under perfect competition than under a
monopoly? (1 x 2)
Consumers have a wider variety of goods to choose from at lower prices whereas in a
monopoly consumers have no other choice but to buy the available product at the price the
monopolist charges.

3.16 Why does the AR curve always lie above the MR curve? (1x2)
• AR curve is more elastic than the MR curve
3.17 How do imperfect market structures occur? (1 x 2)
• Imperfect markets occur when one of the conditions of perfect markets is not met.

(Accept any other correct relevant response)

DATA RESPONSE
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HINT: All section B questions have TWO data interpretation questions – each total 10
marks. Section B consist of Questions 2-4 not as numbered in this document

QUESTION 4:

4.1. Study the extract below and answer the following questions:

THREE MONOPOLIES THAT SOUTH AFRICA SHOULD END

Entities that are protected by legislation morph into monopolies, resulting in limited
competition. Time and time again, these legislated monopolies bank on the taxpayer’s
rands to bail them out of the repercussions of what seems to be chronic
underperformance. Below is a list of industries that are overshadowed by state-run
monopolies that, if deregulated and privatised, will yield far greater returns to the citizens
of South Africa.
 Aviation
 Energy Supply
 Railways

4.1. DATA RESPONSE

4.1.1 Identify ONE of the three state monopolies implied in the extract.
• SAA
• Eskom
• Transnet (1)

4.1.2 How are monopolies protected?

• By legislation
• Barriers such as a patent
(Any other relevant correct answer) (1)

4.1.3 Describe the term monopoly

• A monopoly is a market structure in which there is only one seller of a unique
good or service that has no close substitute.
(Any other relevant correct answer) (2)

4.1.4 Why do you think South Africa should end the monopolies in the
above extract?
• Underperformance: Tax fees are used to counteract the underperformance of
these monopolies,
• No substitutes: the consumer is left with any other choice as they are the only
suppliers of these specific services / products. Limited competition: More
competition will lead to more efficiency and fairer prices.
• Restricted access: Access to the market for alternative competition is
blocked.
(Any other relevant answer) (2 x 1) (2)
4.1.5 Explain the disadvantages of the monopolies
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• A monopolist always charges a high price, which is higher than the

competitive price. thus a monopolist exploits the consumers.
• A monopolist is interested in getting maximum profit. he may restrict the
output and raise prices. thus, he creates artificial scarcity for his product.

• A monopolist often charges different prices for the same product

• Consumers, he extracts maximum price according to the ability to pay of
different consumers. (2x2) (4)

4.2 Study the extract below and answer the questions that follow:

OLIGOPOLIES

A few large oligopolies dominate an oligopoly market, i.e. just a few handset manufacturing
companies dominate the cell network of South Africa. The products are similar, and sold
by a few companies. Moreover, the products are branded due to extreme competition, and
because there are huge long- term entry barriers, the companies make exorbitant profits.
The competing companies have an unusual interdependence, to the point that they almost
operate in unison.

[Adapted from Markitects./co.za]

4.2.1 From the extract, list ONE feature of an oligopoly.

• Products are similar and sold by a few manufacturers
• Products are branded due to extreme competition
• Barriers to entry. (1)

4.2.2 What other economic term describes the nature of the product
sold by oligopolies?
• Homogenous (1)

4.2.3 Explain the term entry barrier.

• It is not easy to enter or exit the market, an obstacle preventing new businesses from
entering the market (2)

4.2.4 Why do firms collude with one another?

• They collude with one another so as to maximise profits
• To limit entry in the market
• (Accept any other correct relevant response) (2x1) (2)

4.2.5 How does branding assist a company operating in an oligopoly market

structure?
Branding assists in:
• Distinguishing a product from other competing brands
• Promoting brand loyalty
• Attracting customers

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• (Accept any other correct alternative response) (2x2) (4)

4.3 Study the graph and answer the questions that follow

4.3.1 Which market structure is depicted above?

• Perfect market (1)

4.3.2 What type of profit is indicated in the above graph?

• Normal profit. (1)

4.4.3 Briefly explain point ‘e’ on the graph.

• A point of equilibrium where marginal cost is equal to marginal revenue (2)

4.3.4 Explain the slope of the marginal cost curve.

• The marginal cost curve first slopes downwards sharply, then gradually slopes upwards,
because it is a change in total cost 
(Accept any other correct relevant response) (2)

4.3.5 Why are MR and AR equal in the graph?

• Because the price is constant; extra revenue received from an extra unit (MR) is equal to
price 
• And revenue per unit is also equal to price 
• Therefore, marginal revenue is equal to average 
(Accept any other correct relevant response) (4)

4.4 Study the graph and answer the questions that follow

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4.4.1 What does the shaded area in the graph represent?

• Economic profits (1)

4.4.2 Which point on the graph illustrates profit maximisation?

• E (1)

4.4.3 Briefly describe the term monopoly.

• Monopoly is a market structure where only one seller operates and entry is blocked.

(Accept any other relevant correct response) (2)

4.4.4 Explain entry as a feature of a monopoly

• There are barriers to entry in the market.
• Entrance to the market is completely blocked 
(Accept any other correct relevant response) (2)

4.4.5 Use the formation from the graph, calculate the profit or loss.
Show ALL calculations.
Profit/Loss = TR – TC 
= (100 x 50) – (80 x 50)
= 5 000 – 4 000 
= 1 000 (Profit) 
OR
Profit/Loss = (AR – AC) x Q 
= (100 – 80) x 50
= 20 x 50 
= 1 000 (Profit)    (Max 4)

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4.5 Study the scenario below and answer the questions that follow

4.5.1 What according to the article should be the main focus of ACSA?
ACSA should focus on customer services. (1)

4.5.2 Identify ONE of the South African Airways competitors.

Kulula / 1time. (1)

4.5.3 Briefly explain the term competition.

The rivalry among sellers trying to achieve such goals as increasing profits,
market share, and sales volume by varying the elements of the marketing mix:
price, product, distribution, and promotion. (2)

4.5.4 How did the introduction of competition benefit the airline?

• Gave people the option and together with price comparison sites like southafricato,
have driven airlines down dramatically.
• Competition has transformed the airline industry. (2)

4.5.5 Would you describe the taxi industry in South Africa as a monopoly?
Explain.
No.
In the taxi industry, there are many riders (buyers) and many taxi owners
(sellers).
There are no barriers to entry.
(Accept any other correct relevant response) (4)

4.6 Read the extract below and answer the questions that follow

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4.6.1 Which market structure is represented by the extract above?

Monopolistic competition (1)

4.6.2 Name any ONE method of non-price competition.

• Loyalty programmes
• Promotions/Sales/Discounts
• After sales services
• Door to door delivery
(Accept any other relevant correct response) (1)

4.6.3 Briefly describe the term differentiated products.

Differentiated products are goods that are similar but not exactly the same (not
identical).
These goods satisfy the same need but have different qualities and features.
(Accept any other correct relevant response) (2)

4.6.4 Why do firms benefit from collusion?

• Firms benefit by maximizing profits and limiting competition.
• Existing firms are able to keep new entrants out of the market.
(Accept any other correct relevant response) (2)

4.6.5 How does branding and brand loyalty impact new entrants such as T-Touch
mobile to the market?
• T-Touch mobile may struggle to compete with existing brands as these brands
already have distinguished their goods.
• Existing brands such as Samsung and Huawei will have an advantage as they have
a loyal customer base.
(Accept any other correct relevant response) (4)

4.7 Study the graphs and answer the questions that follow

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4.7.1 Describe the shape of the individual firms demand curve.

Horizontal (1)

4.7.2 Name the market price in the graphs above.

R 30 (1)

4.7.3 Briefly explain what long-run cost of a business is.

• The long run refers to a period of time that is long enough for enterprises to change
the quantities of all their inputs utilized in the production process.
OR
• The period in which there are no fixed inputs – all the inputs (including all the
factors of production) are variable.
(Accept any other correct relevant response.) (1 x 2) (2)

4.7.4 Why is a firm in a perfect market a price taker?

The price is determined by the market supply and demand and the individual firm is one
of many sellers and must accept the price.
(Accept any other correct relevant response.) (1 x 2) (2)

4.7.5 How is the price of a perfect market influenced in the long run?
• In the long run more suppliers will enter the market as economic profit made in the
short run will be attractive.
• As more suppliers enter the market the price will be pushed down by the
competition.
• If the price is lowered the profit shrinks.
• In the long run this lowering of prices leads to the firm being able to only make
normal profit.
(Accept any other correct relevant response.) (2 x 2) (4)

4.8 Study the graph below and answer the questions that follow:

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4.8.1 Which market structure is depicted above?

Monopoly (1)

4.8.2 What type of profit is being made by this firm?

Normal profit (1)

4.8.3 Briefly describe the term profit maximization.

A point of equilibrium where marginal cost is equal to marginal revenue
(Accept any other correct relevant response) (2)

4.8.4 Why should Eskom always make an economic profit?

Eskom is a monopoly and the only supplier of electricity in the country.
(Accept any other correct relevant response) (2)

4.8.5 Determine the firm’s economic loss/profit. SHOW ALL CALCULATIONS.

4.9 Study the picture and answer the questions that follow

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4.9.1 Why would an entrepreneur choose to operate in a monopolistically competitive

market?
• No barriers to entry
• The products are differentiated
• Every monopolistic-competitive business has a degree of monopolistic power and is
actually a mini-monopoly in the sense that it is the only producer of that specific
brand or variant of the product
(Accept any other relevant answer) (1)

4.9.2 What kind of profit can these competitors make in the short-run?
Economic profit (1)

4.9.3 Based on the cartoon, give TWO characteristics of monopolistic

competition.
• A large number of producers
• Products are not identical but differentiated – similar in many ways but not totally
identical
• Differences based on branding (any 1 x2 ) (2)

4.9.4 Name TWO similarities between a perfect competitor and a monopolistic

competitor in the long run.
• Many suppliers and many consumers
• Completely free entry / unrestricted
• Both market structures make a normal profit in the long run
• The price of the product = average cost
• Collusion is not possible (Any 2x1) (2)

4.9.5 How can the two competitors depicted in the cartoon compete? Give examples.
• Businesses compete on the basis of non-price competition.
• Product differentiation and advertising play a key role.

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• Packaging and for example toys given with kiddie’s meals are used to compete.
(4)

4.10 Read the extract and answer the questions that follow

4.10.1 Which company involved in a takeover mentioned above is a South African

company? (1)
• SABMiller

4.10.2 In which industry is the above-mentioned company they involved in?

• Producing beer / liquor industry (1)

4.10.3 Name TWO examples of oligopoly industries mentioned in the article above.
• The energy industry
• Banking industry
• Supermarket industry
• Telecoms and radio industries
• IT services
• Accountancy (2)

4.10.4 Briefly describe the term cartels.

• An association of manufacturers or suppliers formed to maintain high prices and
restrict competition.
(Accept any other relevant answer.) (2)

4.10.5 What effect does “uncompetitive industries” have on the economy?

Substantiate your answer.
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• Uncompetitive industries have a negative effect on the economy.

• Lack of competition leads to high prices being asked by producers as there is no
competition.
• It also leads to underproduction and wastage of resources.
(Accept any relevant answer.) (4)

4.11 Study the graph and answer the questions that follow

4.11.1 Identify the market structure above.

Perfect market structure (1)

4.11.2 What is the market price?

R4.00 (1)

4.11.3 What type of profit will the above-mentioned market structure make in
the long term?
Normal Profit (2)

4.11.4 Determine whether this business make a normal/ economic profit or a

loss.
Show ALL calculations.

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(6)

4.12 Study the table below and answer the questions that follow.

Price Quantity TR TC Profit

10 0 0 25 -25
10 5 A 30 20
10 10 100 35 65
10 15 150 40 B
10 20 200 45 155

4.12.1 Identify the market represented by the table.

• Perfect Market (1)
4.12.2 What is represented by the -25 in the profit column above?
• A loss of R25 (1)
4.12.3 Determine the values of A and B
• 50
• 110 (2)
4.12.4 Why is there a value for TC when production (quantity) is zero?
• There will always be a fixed cost even if no production takes place. Firms still have
to pay these fixed costs as they are not related to production levels
(Accept any other relevant correct response) (2)

4.12.5 Present TR and TC on the same set of axes

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• Correct drawing of TC curve =TEACHER GUIDE GRD 11
• Correct drawing of TR curve =
(4)

4.13 Study the cartoon below and answer the questions that follow.

Source: businessbookmail.com
4.13.1 Which market structure is illustrated in the cartoon above?
• Oligopoly (1)
4.13. 3 What is the nature of the product in the cartoon?
• Identical or highly differentiated (1)
4.13.3 Briefly describe the concept collusion.
• This is when oligopolists does secret pricing, quality and market deals with each
other to reduce the strain of uncertainty and competition
(2)

4.13.4 Why is it more beneficial for firms to collude instead of engaging in

competition?
• Firms will make more profit when they collude. It is difficult to constantly compete
with other firms while making an agreement to limit competition means less effort
(2)
4.13.5 Evaluate the impact price fixing has on the poor?
• Poor people will be affected negatively as prices will increase.

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• The increase in prices will lead to poor being able to buy less than before,
decreasing the standard of living. (4)
(Accept any other relevant correct response)

4.14 Study the graph below and answer the questions that follow.

4.14.1 Identify the profit maximisation quantity in the graph above

• 10 . (1)

4.14.2 Which curve is also known as the supply curve?

• MC curve (1)
4.14.3 Define the term marginal revenue.
• Additional income the firm receives after selling an additional unit.
(2)

4.14.4 Why is the MC curve of a monopoly not intersecting the ATC at the minimum
point?
• It is because a monopoly firm does not produce at the lowest cost. Production is
restricted in order to goods in short supply and charge higher prices
(2)
4.14.5 Determine whether the firm represented in the above graph is making a profit
or a loss.
• Total cost = 10 x R20 = R200 Total revenue = 10 x R16 = R160
Profit / (loss) R160 – R200 = -R40
The firm is making economic loss as total revenue is less than total cost.
(4)

4.15 Study the graph below and answer the questions that follow.

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4.15.1 Which market structure is represented by the graph?

• Perfect competition or Perfect market (1)
4.15.2 What does the shaded area represent?
• Economic profit (1)
4.15.3 Briefly explain the concept price taker.
• A price taker is an individual producer who accepts prevailing prices in a market,
lacking influence over the price.
• An individual producer cannot charge higher prices as this will result in him/her
customers buying somewhere else (2)
4.15.4 Why is the demand curve of the market structure a horizontal line?
• An individual producer cannot influence the price and has to accept the market
price.
• Charging a higher price will result in the firm losing customers to its competitors.
(2)

4.15.5 Explain why a perfect market firm makes normal profit in the
long run?(4)
• Economic profit an individual producer earns in the short term attracts new entrants.
The new entries increase the quantity supplied and pulls down the price resulting
in average cost being equal to average revenue in the long term.

• The individual producer may acquire a bigger plant to increase production as a result
of the economic profit . Quantity produced increases leading to a decrease in
price. (4)

All section B questions have TWO 8 marks questions. One is a Middle

order paragraph, the other is a Higher order paragraph

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QUESTION 5 Paragraph type questions – Middle Cognitive

5.1. Differentiate between product market and factor market.

Factor markets:
• Market for factors of production.
• Each factor of production is sold in a different market.
• The price of each factor of production is determined through the interaction of
demand and supply.
• If the supply of one factor of production changes, it affects the rest of the factor
market as well as the product market (2x2) (4)

Product market:
• Market for goods and services.
• Product market is divided into capital goods market, consumer goods market and the
service market.
• If demand for a product or a service increases, the demand for factors of production
will also increase in the factor market.
• A change in the product market influences demand in other markets.
(2x2) (4) (8)

5.2 Examine the implication of ‘non price competition’ in oligopolies.

• Oligopolies tend not to compete in terms of the price of products.
• Businesses normally engage in non-price competition such as advertising, product
differentiation, to gain market share.
• They try to distinguish their products from those of other businesses in order to gain
a competitive advantage.
• Businesses try to avoid price competition as this could lower the profitability of the
different businesses.
• Forms of non-price competition include: building brand loyalty extended shopping
hours; doing business over the internet; after sales service;
loyalty rewards to customers; etc. (2x4) (8)

5.3 Briefly discuss nature of the product and price control as characteristics of
monopolistic competition.
Nature of the product
• Monopolistic competition offer differentiated product, which means they are similar
but slightly different from each other.
• The differentiation is in the minds of the consumers – they perceive the product of a
specific firm as unique or superior to any other product belonging to the same group
and so creating a sense of value
• Product differentiation may be real or imaginary – real differences are like design,
material used, and skills, whereas imaginary differences are through advertising,
trademark and so on.
• Differentiation does not imply changing the product, sometimes it is enough just by
simply creating a new advertising campaign or by changing packages.
(2 x 2) (4)
Price control
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• Businesses have considerable control over the prices of their goods or services but
less control than in a monopoly – they cannot fix the price
• The only control they have depends on the strength of brand loyalty
• Competition does not take place through prices, but through differentiation of
products
(Accept any other correct relevant response) (2 x 2) (4)
(8)

5.4 Discuss barriers to entry and collusion as some of the determinants of market
structures.
Barriers to entry:
• This refers to how easy or difficult it is for businesses to enter or leave the market.

• Under perfect condition, entry is completely free whereas it is entirely blocked under
monopolies.
• Very often access is denied by law. (2x2) (4)

Collusion:
• Collusion occurs when sellers come up with ways in which they can minimise
competition amongst themselves in order to gain market power so that they can
influence the market price of the product.
• In a perfect market, monopoly and monopolistic competition there is no secret
communication between sellers that enables them to negotiate favourable terms for
themselves
• It is impossible for a monopolist to collude since he/she is the only seller .
• In an oligopolistic market, sellers can fix prices by agreeing on the prices they are
going to charge and the quantities they are going to produce.
(Accept any relevant correct explanation.) (2 x 2) (4)
(8)

5.5 Briefly explain the characteristics of an oligopoly.

• There is limited competition.
• Only a few suppliers manufacture the same product.
• Products may be homogenous or differentiated.
• This market is characterised by mutual dependence.
• The decision of one company will influence and will be influenced by the decisions of
the other companies.
• Oligopolies can frequently change their prices in order to increase their market
share. However this can result in a price war.
• Extensive use is made non-price measures to increase market share e.g.
advertising, efficient service or product differentiation.
• Producers have considerable control over the price of their products although not as
much as in a monopoly.
• If oligopolies operate as a cartel, firms have an absolute cost advantage over the rest
of the competitors in the industry.
• Abnormal high profits may be a result of joint decisions in an oligopoly.

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• Entry is not easy in an oligopolistic market. This is due to brand loyalty and it also
requires a large capital outlay.
(Accept any relevant characteristic) (2x4) (8)

5.6 Briefly discuss the SMART principle in designing the objectives of

business. Specific:
• The idea must be identified and understood, e.g. the business must become the
most profitable in the country
Measurable:
• It must be possible to test or measure whether the goal has been reached . e.g.
in order for a business to reach its goal it must make a profit of R5 000 a month
Attainable:
• All stakeholders must agree to the set goal
Realistic:
• The goal must be within reach for the business e.g. the business must be capable of
reaching the required profit
Time specific:
• There must be a time limit on achieving a goal. e.g. the business must be the most
profitable within a period of five years
(Accept any correct relevant response) (4 x 2) (8)

5.7 Briefly discuss nature of the product and entry as characteristics of a

perfect markets. Nature of the product:
• The product is homogenous.
• It is identical in all respects.
• there is no branding. (2 x 2) (4)

Entry:
• Entry and exit are free
• There are no barriers to entry (2 x 2) (4) (8)
(Accept any other correct relevant response)

5.8 Distinguish between natural and artificial monopolies.

Natural monopolies
• A type of monopoly that exists due to the high fixed or start-up costs of conducting a
business in a specific industry.
• Natural monopolies can arise in industries that require unique raw materials,
technology or similar factors to operate.
• Since it is economically sensible to have some monopolies like these, governments
allow them to exist, but provide regulations, ensuring that consumers get a fair deal.

• A single business in such an industry can serve the whole market at a lower
price than two or more businesses together.
• They are frequently owned or regulated by the government.
• Example, Eskom, Transnet (2x2)(4)
Artificial monopolies

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• A very large firm that has no advantage in production efficiency over smaller
firms but nonetheless manages to drive all of its competitors out of business,
remaining the sole producer in the industry.
• Patents are also encountered in these monopolies.
• Example, Microsoft, Google
(Accept any relevant correct response.) (2x2)(4)
(8)

5.9 Discuss competition and transport and communication as

characteristics of perfect markets.
Free competition
• Buyers must be free to buy whatever they want from any firm and in any quantity.

• Sellers must be free to sell what, how much and where they wish.
• There should be no State interference and no price control.
• Buyers should not form groups to obtain lower prices, nor should sellers combine to
enforce higher prices. (2x2) (4)
Efficient transport and communication
• Efficient transport ensures that products are made available everywhere.
• In this way changes in demand and supply in one part of the market will influence the
price in the entire market.
• Efficient communication keeps buyers and sellers informed about market conditions.

(Accept any correct response.) (2x2)(4)

(8)

5.10 Discuss non-price methods to increase market share.

• To create loyalty to a brand name
• To have longer shopping and business hours
• To do business over the internet (banking and shopping)
• To provide good after-sales services
• To provide additional services (such as free travel insurance by banks)
• To reward customers for loyalty
• To offer door-to-door delivery
(Accept any correct response.) (2x4) (8)

5.11 Examine the disadvantages of a monopoly as a market structure.

• A monopolist always charges a high price, which is higher than the competitive price.

• Thus a monopolist exploits the consumers.

• A monopolist is interested in getting maximum profit. He may restrict the output and
raise prices.
• Thus, he creates artificial scarcity for his product.
• A monopolist often charges different prices for the same product from different
consumers.
• He extracts maximum price according to the ability to pay of different consumers.
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• A monopolist uses large-scale production and huge resources to promote his own
selfish interest.
• He may adopt wrong practices to establish absolute monopoly power.
• In a country dominated by monopolies, wealth is concentrated in the hands of a few.

• It will lead to inequality of incomes.

• This is against the principle of the socialistic pattern of society.
(Accept any relevant correct explanation.) (2x4) (8)

5.12 Explain interdependence of firms and non-price competition as

characteristics of an oligopoly. Mutual dependence

• One seller’s action will influence the other sellers .

• Each firm is aware of each other’s actions since the market is dominated by a few
firms, e.g. cars.
Non-price competition (2x2) (4)
• Oligopolists are reluctant to change prices, this is to prevent price wars
• They make use of other measures to attract customers and increase their market
share
• for example after sales service, building brand loyalty.
(Accept any correct response.) (2x2)(4)
(8)

5.13 Discuss FOUR characteristics of a perfect market.

• Large number of buyers and sellers – they cannot control price.
• Products are homogeneous, which means products are of the same type, quality
and appearance.
• Freedom of entry and exit – market is totally accessible.
• Buyers and sellers have complete knowledge about price, quality and availability of
goods.
• The market is impartial – no one has an advantage over the other.
(Accept any other correct characteristic.) (Any 4 x 2) (8)

5.14 What would producers benefit by producing at a level that allows them
to experience economies of scale?
• They produce at the lowest cost per unit.
• Fewer inputs are needed to produce the same number of output.
• Prevents a situation of producing beyond a certain point, where a company would
not be managed efficiently.
• Producers often buy in bulk and get discounts.
• They have a better ability to invest in advanced technology and new equipment.

• They can afford to invest in other important business activities, such as marketing.
(Accept any relevant answers.) (4 x 2) (8)

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5.15 With the aid of a formulae explain the relationship between average and
marginal revenue when price is constant at all levels of output.

• Marginal revenue (MR) refers to the additional revenue that the firm gains, if it sells
an additional unit.
• MR can be calculated as follows: MR = Change in total revenue
Change in units sold
• In firms where the price is constant, an additional unit sold increases total revenue by
the same amount which the same as the price.
• Average revenue (AR) is the revenue per unit.
• AR is calculated as follows: Total revenue
Number of units
• Since the price is constant the revenue received for each unit is equal to the price.

• Therefore MR and AR are equal to the price. P=MR=AR.

• The demand curve is the same as the AR and MR curves. (2x4) (8)

5.16 With the aid of graphs explain the type of demand curve, type of profit
and profit maximizing points of the oligopolist and the monopolistic firm.

Mark allocation: Max = 4

• Correct naming of both graphs.=2
• Correct indication of economic profit on both graphs. =2
• Correct positioning of the MC and MR on both graphs. =2
• Correct indication of profit maximizing points in both graphs =2
• Correct position and shape of the demand curve of both graphs.=2

OLIGOPOLIST MONOPOLISTIC FIRM

Demand curve Kinked Downward sloping
(Relatively elastic)
Profit maximizing point Where MC = MR Where MC = MR

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Profit and reason Economic Profit because Economic Profit because AR

AR > AC > AC
(Max 4)(8)

5.17 Compare Perfect competition and the Monopoly in terms of entry and price
control

(4 x 2) (8)

5.18 Briefly explain how oligopolies can increase their market share.
• Oligopolies will use non-price competition to increase market share.
• Oligopoly firms tend not to compete in terms of the price of products.
• They will use product branding and marketing to gain market share.
• Firms in an oligopoly are interdependent. This means that each firm has to consider how the
other firms in the industry will react to any decision made.
• Businesses try to avoid price competition as this could lower the profitability of the different
businesses.
• Forms of non-price competition include: o Building brand loyalty o Extended
shopping and business hours o Doing business via the internet o After-sales
service o Offering additional services o Loyalty rewards for customers o
Door-to-door deliveries
(Accept any relevant answer. Examples only 1 marks each and max 2 marks)
(4 x 2) (8)

5.19 Compare the nature of the product and ease of entry, as characteristics of
a perfect market, with that of an oligopoly.
Nature of the product:
▪ Perfect market goods are homogenous, meaning all goods are identical.
▪ While in an oligopoly goods can be similar, differentiated or heterogenous, meaning
goods are branded and have features that are different.
(e.g. design) (MAX 4)
Ease of entry:
• Entry into and exit out of a perfect market is completely free, meaning there are no
barriers to entry.
• However, entry into an oligopoly is free but difficult as there are a number of barriers
making it harder for firms to enter the market. (e.g. high capital costs).
(MAX 4)
(Accept any other correct relevant response)
(Maximum 4 marks for mere listing) (8)

5.20 Discuss non-price methods to increase market share.

• To create loyalty to a brand name✓✓
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• To have longer shopping and business hours ✓✓

• To do business over the internet (banking and shopping) ✓✓
• To provide good after-sales services ✓✓
• To provide additional services (such as free travel insurance by banks) ✓✓
• To reward customers for loyalty ✓✓
• To offer door-to-door delivery✓✓ (Any 4 x 2) (8)

5.21 Briefly discuss the demand curve of the monopolist. (4x2)

• Monopolist demand curve has a negative slope/downward sloping from left to right.

• The demand curve is also the market (or industry’s) demand curve.
• The shape of the curve indicates that there is an inverse relationship between price and
quantity demanded.
• This means as price increase quantity demanded will decrease/price decrease quantity
demanded will increase. (8)

5.22 Distinguish between TWO types of profit

Accounting profit
• Also known as total profit
• It I s the difference between total revenue from sales and total cost
• Accounting profit = Revenue minus explicit costs
Normal profit
• It is the minimum return required by owners to continue with the business
• It is the remuneration for entrepreneurship
• It is included in the total cost of production
• When revenue is equal to explicit costs plus implicit costs Economic profit
• It is the extra profit that the firm makes
• Is the profit that the business makes in addition to normal profit
• It’s also known as surplus or excess or extra profit
• Economic profit = revenue minus explicit costs plus implicit costs

5.23 Discuss the characteristics of monopolistic competitor (8)

• Relatively large number of sellers
• This type of competition consists of a large number of seller, who are typically small
businesses and no business has total market control
• Monopolistic competitors have little control over prices
• Competition does not take place through prices, but through differentiated products

• Products are differentiated brand loyalty is also important

• Differentiated products differ only slightly, and the sellers promote their products as unique
products through advertising
• Market exit and entry is relatively easy
• Ext and entry are relatively easy as there are no legal restrictions or patent rights
• Buyers and seller have incomplete information
• Neither the buyer nor the seller have full knowledge about market conditions as there are
many buyers and sellers
(Accept any other correct relevant response)
(Allocate a maximum of 4 marks for mere listing of fact/example)

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5.24 Explain the terms price makers and completely blocked entry in terms of a
monopoly.
PRICE MAKERS
• The monopolist has some control over the price of the product.
• They will tend to set the price at such a level that it maximises its own benefit.
• While the monopolist is a price maker, this does not imply that it can control both the price
and the quantity sold, because it must still take the law of demand into account.

(Accept any other relevant correct answer.) (Max 4 Marks) COMPLETELY

BLOCKED
• No other firm may enter the market.
• The monopoly is normally protected.
• Examples of protection: Legislation, patents, licensing, exclusive ownership etc.
(Examples 1 mark each – max 2 marks for examples in total)
(Accept any other relevant correct answer.) (Max 4)
(2 x 4) (8)

5.25 Discuss the impurities in perfect markets.

-The number of producers is not numerous
-In South Africa, e.g. the private hospital market is dominated by two big businesses
-Goods sold by all producers are not completely identical
-Agricultural goods are often graded to create homogeneity
-There are costs involved in moving into and out of the market
-licences are required to sell food, permits to sell medicines, professional registrations for
professionals such as accountants (8)

5.26 Distinguish between natural and artificial monopolies.

Natural monopolies
• A monopoly that exists due to the high fixed or starts up costs of conducting a
business in a specific industry.
• Natural monopolies can arise in industries that require unique raw materials,
technology or similar factors to operate
• A single business in such an industry can serve the whole market at a lower price
than two or more businesses together
• They are frequently owned or regulated by the government
• E.g. Eskom, Transnet (MAX 4)
Artificial monopolies
• A very large firm that has no advantage in production efficiency over smaller firms
but nonetheless manages to drive all of its competitors out of business, training,
remaining the sole producer in the industry.
• Patents are also encountered in these monopolies
• E.g. Microsoft, Google (MAX 4))
(2 x 4) -= (8)

5.27 Differentiate between accounting profit and economic profit

Accounting profit
• Also known as total profit
• It is the difference between total revenue from sales and total costs
• Accounting profit =Revenue minus explicit costs
• It excludes implicit costs (MAX 4)
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Economic profit
• It is the extra profit that the firm makes
• It is profit that business makes in addition to the normal profit
• It is known as surplus or excess or extra profit
• Economic profit =Revenue minus the sum of implicit and explicit costs
• Includes implicit costs (MAX 4) (8)

5.28 Distinguish between Fixed costs and Variable costs (8) Fixed
costs
-Remain the same whether the business is producing at capacity or the factories are
standing idle
-the curve is a horizontal line
-the curve starts above zero (MAX 4)

Variable costs
-They change with the level of output
-curve is upward sloping
- the curve starts at zero (MAX 4)

5.29 Discuss the characteristics of monopolistic competition.

• There are many competitors some of which are large
• Entry into the market is not difficult but is restricted by modest entry costs mainly
overheads. E.g. licences and qualifications
• Product differentiation prevails. Brand names are articulated
• There is no price competition . Competitors compete through advertising, good
customer service and service differentiation
• Information is incomplete (8)
•

TYPICAL EXAM QUESTION: THESE HIGHER ORDER

QUESTIONS REQUIRE THE LEARNERS TO USE HER/ HIS
CRITICAL THINIKING SKILLS.

Higher order questions are grounded in the content. These types of questions test critical thinking,
where candidates should be able to apply their knowledge, through logical reasoning and also have
an awareness of their current economic climate. Content (covered by discuss/examine/describe/
analyse/explain/evaluate/compare/assess/justify/construct/calculate) can be assessed as higher-order
questions. Answers will not necessarily be found in textbooks.

QUESTION 6 Paragraph type questions – Higher cognitive

6.1 How can changes in the product market effect the factor market?

• Any change in the demand and supply of a product will affect the market of that
product.
• Prices and quantities will change and the market for the factors of production
involved in the production of that product will also change.

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• If the demand for a product increases, that will lead to an increase in the price of
that product in the market and an increase in price will make it more profitable
for producers to supply that product.
• If the suppliers want to supply more of that product, they are going to need more
factors of production (land, labour, capital) which they must get from the factor
market.
• A change in the demand and supply in the goods market will lead to a change in
the demand and supply in the factor market.
• For example, if there is a move from eating ‘junk food’ (e.g. pizzas and
hamburgers) towards more health-conscious habits such as exercising.

(Accept any relevant correct explanation.) (2x4) (8)

6.2 How can fast food outlets, namely KFC and Nando’s, compete without using
market price?
• KFC uses limited meals or combo’s and promotions such as the dunked burger to attract
more customers, and introduces new permanent food items to the menu so that existing
customers will have a wider variety to choose from.
• Nando’s uses controversial advertisements to create brand loyalty and to pique customer
interest.
• Both Nando’s and KFC specialize in chicken however KFC provides a variety of chicken
meals such as nuggets, burgers, pieces etc. creating a wider variety of chicken options to
choose from.
• Recently, Nando’s introduced burgers and wraps to their menu in order to compete with
KFC’s variety of options.
• Nando’s also introduced a vegetarian option (veggie wraps and burgers) to appeal to the
vegetarian market share.
• Nando’s has always sold spicy chicken and owned the market share of people who prefer
spicy chicken but recently, KFC introduced a spicy version of their batter to gain
customers from Nando’s who prefer spicy chicken.
• Nando’s added Lemon and Herb and BBQ flavours to their chicken to gain the market share
of people who do not like spicy chicken.
• Nando’s sells healthier fast-food chicken because their chicken does not have a crumbed
crust around it and they offer rice and vegetables as possible meal combos.
• KFC’s crumbed crust recipe is a secret, and they promote it in this way to create curiosity
among consumers.
• KFC introduced a drive-through option to make it more convenient for consumers to buy
their product and in recent years, Nando’s has followed this trend and now also has a drive-
through option.
• Nando’s released their signature sauces to shops which is available for consumers to
purchase and use at home, meaning they can get a taste of Nando’s with home cooking.

• Nando’s is a South African franchise, and they could use this to their advantage by
promoting the proudly South African campaign. • Both KFC and Nando’s offer
store delivery as well as arrangements with Mr Delivery and Uber Eats to create ease of
access to their food.

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• Neither of these two fast food outlets have special kids’ meals and toys to attract people with
children but it would advantage them if they do so as other franchises have had great
success with this method.
• KFC has the ‘Add Hope’ campaign where customers can donate R2 to feed children in
poverty, appealing to the humanitarian side of consumers.
(Accept any other correct relevant response) (8)

6.3 Examine the positive impact of competition on markets

• Promoting competition yields the best allocation of resources, lowest prices, highest quality and
the greatest material progress.
• Competition improves productivity and international competitiveness of markets and promotes
dynamic markets and economic growth.
• Markets faced with vigorous competition are continually forced to become more efficient and
more productive.
• They know that their competitors are constantly seeking ways to reduce costs in order to
increase profits.
• Competition results in markets being innovative because innovation is crucial to success.

• Innovation leads to new products and new production technologies being developed.
• Competition allows new firms to enter into the market usually dominated by few firms.
• Competition forces decisions to be based on market factors such as demand, costs,
technologies rather than incomplete information. (8)

6.4 How would collusion between companies negatively impact on the

consumers?
Collusion impacts negatively on the consumer because:
• It increases the price of goods and services
• It decreases the quantity supplied, this leads to shortage or scarcities
• It leads to ineffective use of factors of production, leading to wastage, productive inefficiencies

• It leads to creation of monopolies

• It leads to allocative inefficiencies – incorrect combination of product supplied to satisfy needs
and wants
(Accept any other correct relevant response)
(Allocate a maximum of 2 marks for mere listing of fact/example)(4 x 2) (8)

6.5 How do legal barriers prevent new businesses from entering a specific type of
market?
• Monopolies are protected by law when the national government argues that it is in the best
interest of society/ public
• Mail service – single price stamp will guarantee delivery anywhere in the country
• Monopoly enables cheap local deliveries to remote places
• Teachers, doctors, lawyers belong to professional bodies to ensure a standard – it is a type of
monopoly
• Patents, copyright, intellectual property – new ideas cannot be pirated (4 x 2) (8)
(8)

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SECTION C

HINT: All section C questions have TWO questions 5 & 6 NOT like in this document. In
the examination you will need to answer only one.

ESSAY STRUCTURE

HINT: Section C – the long question, must be answered in FOUR sections:

Introduction (definition), Body (headings and full sentences in bullets) additional part
and conclusion (summarising). The mark allocations for Section C is as follows:
MARK
STRUCTURE OF ESSAY: ALLOCATION:
Introduction Max 2
The introduction is a lower-order response.
• A good starting point would be to the main concept related to the
question topic
• Do not include any part of the question in your introduction.
• Do not repeat any part of the introduction in the body
• Avoid saying in the introduction what you are going to discuss in
the body
Body:
Main part: Discuss in detail/ In-depth discussion/ Examine/ Critically Max 26
discuss/ Analyse / Compare/ Distinguish/ Differentiate/ Explain/
Evaluate
Additional part: Critically discuss/ Evaluate/ Critically evaluate/
Calculate/ Deduce/ Compare/ Explain Distinguish / Interpret/ Briefly Max 10
debate/ How/ Suggest/ Construct a graph
Conclusion
Any Higher or conclusion include: Max 2
• A brief summary of what has been discussed without repeating
facts already mentioned in the body
• Any opinion or value judgement on the facts discussed
• Additional support information to strengthen the
discussion/analysis
• A contradictory viewpoint with motivation, if required •
Recommendations
TOTAL 40

[40]
QUESTION 7

(MARKET STRUCTURES) 40 MARKS

• Discuss in detail the characteristics of a perfect market. (26)
• Examine the positive impact of competition on markets. (10)
A maximum of 8 marks allocated for headings/sub-headings and examples)

INTRODUCTION

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A perfect market is a hypothetical model of a market where there is no single

consumer or producer that has an impact on the market price. Buyers and sellers
have no preference where to buy or sell the product because the products are the
same. 
(Accept any other correct response.)(2)

MAIN PART
CHARACTERISTICS OF A PERFECT MARKET
Number of buyers and sellers 
• The number of buyers and sellers is so large that individual market participants are
insignificant in relation to the market as a whole. 
• No individual buyer or seller has an influence on the market price in that everyone is a
price-taker. 

Nature of the product 
• All products sold in the specific market are homogenous. 
• They are the same in all respects regarding quality, appearance and any distinctive
characteristic. 
• It makes no difference to the buyer where or from whom to buy the product. 

Freedom of entry and exit 
• There are no factors limiting the producer’s decisions to enter or leave the market. 
• Enterprises are free to enter the market where there are opportunities of making
profits and free to withdraw where losses are occurring. 
• The market is totally accessible, there are no legal, financial nor technological barriers
that can hinder entry and exit. 

Mobility of factors of production 
• All factors of production are totally mobile as they can freely move between markets
without any limitations. 
• Labour can move between jobs at any time. 
• Producers have access to production technology and resources, no producer pays
more for a factor of production than the other. 

Perfect knowledge 
• Buyers have complete knowledge about the prices, quality and availability of goods
and services. 
• Sellers have complete knowledge about production costs and market opportunities.

• If one business ventures to raise its price above the market price, buyers will
immediately become aware of it and would switch their purchases to businesses still
charging the lower market price. 

No collusion 
• Collusion does not occur in a perfect market because sellers act independently of the
others. 

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Unregulated market 
• Buyers and sellers are not influenced by government intervention. 
(Allocate a maximum of 8 marks for listing of facts and examples.)
(Accept any other relevant correct response.)(26)

ADDITIONAL PART
Competition has a positive impact on the markets because:
• Promoting competition yields the best allocation of resources, lowest prices, highest
quality and the greatest material progress. 
• Competition improves productivity and international competitiveness of markets and
promotes dynamic markets and economic growth. 
• Markets faced with vigorous competition are continually forced to become more
efficient and more productive. They know that their competitors are constantly
seeking ways to reduce costs in order to increase profits. 
• Competition results in markets being innovative because innovation is crucial to
success. Innovation leads to new products and new production technologies
being developed. 
• Competition allows new firms to enter into the market usually dominated by few firms.

• Competition forces decisions to be based on market factors such as demand, costs,
technologies rather than incomplete information. (Accept any other relevant
correct response.) (5 x 2) (10)

CONCLUSION
Perfect markets are really rare to find and they serve as a benchmark for the imperfect
markets. 
(Accept any other relevant high order conclusion.)(2)
[40]
QUESTION 8

(MARKET STRUCTURES) 40 MARKS

• Discuss in detail the characteristics of a perfect market. (26)
• Briefly highlight how the perfect market differs from that of a monopolistic market.
(10)
A maximum of 8 marks allocated for headings/sub-headings and examples)

QUESTION 9

(MARKET STRUCTURES) 40 MARKS

• Discuss in detail the characteristics of a perfect market (26)

• Examine the positive impact of competition on markets. (10)

QUESTION 10
• Discuss the FOUR broad types of market structures. (26
• Determine which market structure KFC operates in and give a reason for your
answer. Draw a graph that shows economic profit for KFC. (10)

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QUESTION 11

• Discuss in detail the characteristics of an oligopoly. (26 marks)

• Use a graph and explain why oligopolists are reluctant to compete on
prices. (10 marks)
Introduction
The oligopoly is a market structure dominated by a few large firms.
(Any other relevant definition)(Max. 2)

Body

MAIN PART
Number of businesses: 
• A few big firms dominate the market in an oligopoly. 
• If there are only two firms in the market, it is called a duopoly.


Nature of the product: 

• The product may be identical or differentiated. 
• If the product is homogeneous, the market is a pure oligopoly. 
• If the product is differentiated the market is called a differentiated
oligopoly.

Entry: 
• New producers have free entry to an oligopolistic market, although this is
not easy as illustrated by the fact that there are only a few businesses in
the market. 
• Firms under oligopoly advertise extensively and this in itself is a barrier to
entry to other firms. 
• Advertising is very expensive and firms who cannot afford to do so will lag
behind in competition. 

Interdependent decision-making: P
• Firms in an oligopoly are interdependent in their decision-making,
because there are so few competitors in the market. 
• Any decision and actions of one will have a direct effect on the profits of
the others, who will retaliate by changing prices and output. 
• In an oligopoly a firm not only considers the market demand for its
product, but also the reactions of other firms to its price and output
policies.


Price control / market power: 

• There are limited competitors in an oligopoly which makes firms
price- makers. 
• The oligopolist has limited but fierce competitors, and must
therefore consider their possible reaction. 
• An oligopoly is characterised by price rigidity, because if one firm
cuts
their price, rival firms retaliate by cutting theirs as well. 
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Price and profits: 

• Prices of goods and services are higher in general in imperfect
markets than in perfect competition. 
• Oligopolies develop brand loyalty amongst their customer base and
they are able to generate economic profit. 


Market concentration: 
•Market concentration refers to the number of firms and the size of their
market share. 
• For example, a four firm concentration ratio of 80% illustrates the
market is highly concentrated. Other, smaller firms comprise the
rest of the market. 
(Max of 8 marks for headings and examples and listing)
(Max. 26)
ADDITIONAL PART
Use a graph and explain why oligopolists are reluctant to compete on prices.
(Max. 10)

(Max. 10)

Conclusion

An oligopoly is the only market structure where collusion can occur.

(Any other relevant conclusion) (Max. 2
QUESTION 12
• Discuss the Oligopoly as an imperfect market structure and pay specific attention to its
characteristics and general behaviour. (26)
• Why is collusion among Oligopolists illegal? (10)

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[40]
INTRODUCTION
• An Oligopoly is an industry that is dominated by a few sellers and entry is difficult (2)

BODY
• Many mathematical and graphical models of this market structure exist, however not one is
generally accepted.
• Only a small number of large businesses dominate the market.
• Intense competition can occur which sometimes result in collusion.

Kinds of goods / Nature of the goods

• Most of the times homogenous goods
• Either differentiated goods such as motorcars and newspapers or
• Identical goods such as steel and cement are produced

Barriers
• Barriers to entry are considerable

Pricing
• Is done interdependently
• Pricing of one firm affects the pricing decisions of the others
• Each business must monitor and respond to the pricing and production decisions of the other
enterprises This is critical

Slope of the demand curve

• It can be horizontal, or it can be kinked

Slope of the supply curve

• Upward sloping

Production levels
• Will produce where MR = MC
• Price setting differs
• AR = AC = Sometimes price makers/ price leaders

Control over price

• Considerable, but less than the monopoly

Profits
• Normal profits are made unless they collude
MAX 8 MARKS FOR HEADINGS (26)

ADITIONAL PART
• According to the law, collusion is illegal in South Africa
• The law is administered by the Competition Commission to check uncompetitive behaviour

• However, in order to reduce the uncertainty in the market, businesses are tempted to collude to
reduce competition / Strong incentives to collude
• Hence the laws, to prevent collusion but to promote competition
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• When collusion occurs monopoly conditions enter

• That is why we find price leaders in an oligopoly market where the business with the largest
share sets its prices according to its own cost and revenue conditions and other businesses will
follow the price movements of the price leaders (10)
• (Accept any other correct relevant response)

CONCLUSION
• If an Oligopolist decides to sell its product at a price below or above the fixed price, consumers
only buy from another supplier and the Oligopolist will not make a profit.
Accept any relevant answer. (2)
[40]

QUESTION 13
• Compare in detail, the features of a monopoly with those of monopolistic
competition. (26 marks)
• Why would government support or license monopolies? (10 marks)
[40]

INRODUCTION
Any market that does not have all the characteristics of a perfect market is called an
imperfect market. This is also the case with monopolies and monopolistic markets.
(Accept any relevant definition.) (Max 2)
BODY: MAIN PART MONOPOLY MONOPOLISTIC
CHARACTERISTICS COMPETITION
Number of firms in an A single supplier or firm e.g. A large number of firms or
industry Eskom. There is no suppliers e.g. KFC,
competition. One business in the market controls the Nandos and Tagos. There
supply of the goods and services. is an element of competition.
Product A unique product is produced. Differentiated products,
There are no close substitutes. The product cannot are similar but not identical.
be easily replaced. Consumers have no choice in They are similar in that
price and quality of the product. they satisfy the same needs
of the consumer. There
may be differences in
packaging, but the product
Freedom to enter There are barriers to entry. is the same.
and exit the market Entry into the market is
completely blocked. The barriers are caused by Easy entry into the
patents and other forms of intellectual property rights. market. There is complete
Slope of the demand Downward sloping freedom of entry and exit
demand curve curve for the firm and the into the market.
same curve for the industry. It is also
inelastic. Downward sloping
Control over price The firm is a price maker The demand curve for the
monopolist is able to influence the market through industry, and it is
changing the quantities it supplies to the market. elastic.

Firms have little control

Relative market Total market belongs to one over the price. Each
share firm. business sells at its own
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price. since a single price, cannot be determined for

the differentiated product Relatively small share of
the total market

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Information There is perfect knowledge and Information is incomplete.

information is complete.
Max 13 Max 13

ADDITIONAL PART
Explain why the government would support monopolies.
• To protect the intellectual skill and rights of the producer.
• Some products are very dangerous for there to be too many companies
producing or providing the service; there needs to be a level of
accountability.
• To motivate the producer to continue with the skill, grow the company and
employ more people.
• From the economic profits made, government to get more revenue in
terms of tax.

• To be able to monitor the company, especially if it provides an essential

service like electricity, i.e. price, provision of electricity to all, e.g. in rural
areas and the consistency in doing that.
(Accept relevant correct explanations (10)

QUESTION 14

• Compare the market structure of a perfect with that of a monopoly

(detail) using the characteristics. ( No graphs required) (26
marks)
• With reference to the graphs, explain how the price formation
process takes places in the perfect market. (10 marks)
Introduction
A market structure are the different levels and forms of competition.
OR
A market is any organisation that brings buyers and sellers
together. (Accept any other relevant introduction)

Body/ Main Part

1. Number of buyers and sellers

Perfect market:
• There is a large number of buyers and sellers.
• It should not be possible for one buyer or seller to influence the price.
• When there are many sellers , the share of each sellers in the market is
so small that the seller cannot influence the price.
• Sellers are price takers, they accept the prevailing market price.
• If they increase prices above the market price, they will lose customers.

Monopoly:

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• There is only one seller of the product.

2. Nature of the product

Perfect market:
• Products are homogeneous/ identical. There should be no difference in
style, design and quality.
• Products compete solely on the basis of price and can be purchased
anywhere.
• Products have close substitutes. E.g butter and margarine
Monopoly
• The product is unique.
• The product does not have close substitutes.
• The product cannot be easily replaced by another product or service.
• The consumer can only buy from the monopoly or will have to go without
the product.

3. Barriers to entry
Perfect market
• There is freedom of entry and exit.
• No laws, permits, or regulations that may prohibit new firms to enter the
market.
• New producers are not restricted by high set-up costs.

Monopoly
• Other producers are unable to supply the same product as there are
barriers to entry.
• Examples are: natural barriers such as geographical area, licensing,
patent rights, legal restrictions.

4. Availability of information
Perfect market
• All participants have complete and accurate information about market
conditions
• All buyers and sellers know what quality of goods are available, what the
market prices are and how to produce the product.
• Buyers know the characteristics of the producers, how much they should
pay and where they could buy the product.
Monopoly
• Complete market information exists.

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• All buyers and single seller have full knowledge of all the current market
conditions, however new firms intending to enter the market will not
have the same information available to them.
5. Collusion
Perfect markets
• Collusion occurs when buyers and sellers make an agreement to limit
competition.
In perfect markets no collusion takes place.
• Buyers and sellers base their action solely on price, homogenous
products fetch the same price.

Monopoly
• Collusion is impossible in monopoly market, because there is only 1
supply .

6. Free Competition
Perfect markets
• Buyers and sellers are free to buy whatever they want from any firm and
in any quantity.

• Sellers must be free to sell what, how much and where they wish. •
There should be no state intervention and no price control.

Monopoly
• There is no competition. One business in the market controls the supply
of goods and services.

7. The demand curve

Perfect market
• An individual firm has a horizontal demand curve as the individual firm
has no influence over the price.
• An industry in a perfect market has a downward sloping demand curve.

Monopoly
• The monopolist’s demand curve is downward sloping as the single firm is
the whole market.

8. Profits
Perfect market

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• A perfect competitor can make normal or supernormal (economic)

profit in the short run or a loss.
• Only normal profits can be made in the long run.

Monopoly
• A monopolist makes economic profit in both short run and long run.
(26)
Max 8 for headings
Max 8 for perfect markets and 1 for example = 9
Max 8 for Monopoly and 1 mark for example = 9
Additional Part:
• The market forces of demand and supply determines the prices at R10 and
Quantity at 100.
• The sellers are too insignificant to influence the market price, hence they are
price takers.
• Each individual producer is forced to sell his goods at R10.
• Thus the demand is horizontal or perfectly elastic.
• The individual producer will not increase his price above R10 because he
will lose customers to his competitors.
• The individual producer will not decrease his price to below R10 as he is
able to sell all his products at market price.

(Accept any other correct relevant response) Max = (10)

Conclusion:
A perfect market structure has the extreme largest number of producers
(many) and monopoly has the extreme smallest number of producers (single).
In reality there is no such thing as pure monopoly or a perfect market. There
are quasi monopolies and perfect markets has its own impurities.
( Any relevant conclusion (higher order)

QUESTION 15

• Compare the market structure of an oligopoly with that of a

monopoly (in detail) using the characteristics. ( No graphs required)
26 marks)
• With the aid of a graph, explain fully the graph of an oligopolist.
(10 marks)

Introduction
• A market is all the parties that influence the price of a good or service
giving rise to different levels and forms of competition.

Main Part/ Body

Characteristics
1.Number of participants

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Oligopoly
-Only a few large sellers of the same product dominate the market.
-Examples are: cement, banks and mobile service providers

Monopoly
-There is only one seller.
-The seller completely controls the supply of goods and services to the market.

-For example Eskom

2. Nature of the product

Oligopoly
-Products can be homogenous or differentiated.
Examples of homogeneous products are in an oligopoly are oil, petrol or
bread industry
-If products are homogenous the market is known as a pure monopoly.
- Oligopoly markets with differentiated products are known as differentiated
oligopoly.
-Examples of differentiated products are, cars and cell phones
-Products of oligopoly market structure have close substitutes.
-The consumer has a choice in price, quality or supplier from whom to buy the
product.

Monopoly
- The product is unique.
- The product or service has no close substitute.
- For example diamonds
- The consumer has no choice in price, quality or supplier as there are no
close substitutes.
3.Barriers to entry and exit

Oligopoly
-Entry into the market is limited.
-New producers can have difficulty in entering the market because of natural
barriers to entry. For example, large capital requirements.
- Cell phone industry has artificial barriers. The service provider is required
to be licensed in order to operate.

Monopoly
-Entry into the market is completely blocked.
- Examples or barriers to entry natural barriers such as geographical area,
natural resources, artificial such as licensing and legal restrictions.
-A monopoly that exists as a result of natural barriers is known as a natural
monopoly.

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-Natural monopolies are often owned by the government.

- A monopoly that exists as a result of artificial barriers is known as artificial
monopoly.

4.The availability of information

Oligopoly
-Buyers and sellers have incomplete information
-Buyers and sellers do not have full knowledge of prevailing market conditions

- Oligopolists watch each other closely, but they don’t always know how buyers
and competitors will react

Monopoly
-Buyers and the single seller have full knowledge of all the current market
conditions.

5. The demand curve

Oligopoly
- Oligopoly firms have a kinked demand curve.
Monopoly
- Monopolist represent the whole industry therefore the demand curve is
downward sloping.

6. Price control
Oligopoly
-An oligopolist has a considerable control over prices resulting in high prices and
profits.

- Prices in price by one business others will follow suit. A price decrease by one
firm can initiate price war.

Monopoly
-A monopolist has full price control.
-Prices can be influenced through changing the quantity supplied to the market.

7. Interdependency
Oligopoly
-Each seller is influenced by the decisions of other sellers.
-Competitors may react in different ways to a price reduction by a competitor.

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-The general behavior of oligopolists cannot be predicted with certainty.

8.Collusion
Oligopoly

- No business in an oligopoly can be ever sure about the policy and

behavior of its competitors, therefore the market is full of uncertainty.
- Sellers collude to eliminate the uncertainty.
Monopoly

-Collusion is impossible as there is a single producer with the powers to influence the price.

(26)

Max 8 for headings

Max 8 for oligopoly and 1 for example = 9
Max 8 for Monopoly and 1 mark for example = 9

Additional Part

Mark allocation
Heading of the graph – 1 mark
Correct position of MR- 1 mark

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Correct AR/D curve – 1 mark

Correct position of MC- 1 mark Max – 4marks

Explanation
-The equilibrium price is p.
-When an oligopoly increases the price, its competitors do not follow and
consumers buy from cheaper competitors.
-A small change in price will cause a large change in quantity demanded.
This is represented by the upper part of the demand curve.( Demand
curve above price p) -A decrease in demand by the competitor, other
competitors will also decrease their prices.
-The decrease in price will cause a small change in quantity demanded as all
competitors will have decreased their prices.
- An oligopoly produces quantity where MR = MC and this quantity is in a region
where MR is broken.
- It does not make a difference in price to produce quantity of MC1 or MC2.
Max 6

(10)
Conclusion
Both oligopoly and monopoly are imperfect markets where competition is not
very healthy. The competition in these market structures is monitored using
the Competition
Act policies. Max 2
(Any relevant conclusion (higher order

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