Explain why some firms might choose the goal of profit maximization while others might choose to adopt satisficing behaviour.

Discuss whether price will always be lower and output will always be higher in perfect competition compared to monopoly.

Answers may include:

• definitions of profit maximization and satisficing
• diagram(s) to show MC = MR maximizes profit
• explanation of how profits are maximized when MR = MC and that satisficing behaviour can cover a range of objectives and also lead to outcomes that are less profitable
• examples of firms with different goals.

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

Answers may include:

• definitions of perfect competition, monopoly, price and output
• diagrams to compare long-run equilibrium in perfect competition and monopoly
• explanation of how in perfect competition the characteristics of the market lead to normal profit and economic efficiency and consequently lower prices and a higher output than a less efficient market like monopoly
• examples of perfect competition and monopoly
• synthesis or evaluation (discuss).

Discussion may include: the benefits of monopoly like economies of scale, which could lead to lower prices and higher output.

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.