Explain two factors that might give rise to economies of scale for a firm.

Discuss the view that legislation is the best way of dealing with the problem of monopoly power.

Answers may include:

• definition of economies of scale
• diagram to show the impact of economies of scale on the shape of the long run average cost curve
• an explanation of two factors that give rise to economies of scale like specialisation, financial, technical, bulk buying.etc.
• example(s) of economies of scale.

Marks should be allocated according to the Paper 1 markbands for May 2013 forward, part A.

Answers may include:

• definition of monopoly, monopoly power, oligopoly, legislation
• diagram to show equilibrium in situation of monopoly power, monopoly, oligopoly
• an explanation of the features of monopoly and government responses
• example(s) of industries that are or have been able to exercise monopoly power, government responses
• synthesis or evaluation (discuss).

Discussion may include: the advantages and disadvantages of government responses including legislation, regulation, nationalization and trade liberalization, to the problem of monopoly power.

N.B.: It should be noted that definitions, theory, and examples that have already been given in part (a), and then referred to in part (b) should be rewarded.

Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.

Opinions or conclusions should be presented clearly and should be supported by appropriate examples.

Marks should be allocated according to the Paper 1 markbands for May 2013 forward, part B.