Business growth, market structures and the labour market practice questions (A-Level Economics)

Sample questions

6 of the 10 free A-Level Economics questions on this topic, from the free A-Level Economics Practice Paper, the free A-Level Economics Multiple Choice Questions with Answers and the free A-Level Economics Essay Questions and Answers. Each answer is behind its own toggle; the whole paper, its PDF and the full answer key are on the exam page.

1. Question 125 marks · Labour market intervention: minimum wages
   Evaluate the view that an increase in the national minimum wage will reduce employment.
   Show answerFrom the free A-Level Economics Practice Paper →
2. Question 21 mark · Costs of production
   A firm's total cost rises from 5,000 pounds to 5,400 pounds when its output rises from 100 to 120 units. Over this range the marginal cost per unit, and the average cost at 120 units, are:
   • A.
     marginal cost 400 pounds; average cost 45 pounds
   • B.
     marginal cost 20 pounds; average cost 45 pounds
   • C.
     marginal cost 20 pounds; average cost 50 pounds
   • D.
     marginal cost 45 pounds; average cost 20 pounds
   Show answerFrom the free A-Level Economics Multiple Choice Questions with Answers →
3. Question 31 mark · Revenue
   A firm faces a downward-sloping, straight-line demand curve. At the level of output where its total revenue is maximised:
   • A.
     marginal revenue equals price
   • B.
     marginal revenue equals marginal cost
   • C.
     marginal revenue is zero and the price elasticity of demand is $-1$
   • D.
     marginal revenue is positive and demand is price inelastic
   Show answerFrom the free A-Level Economics Multiple Choice Questions with Answers →
4. Question 41 mark · Economies of scale
   Which of the following is an example of an EXTERNAL economy of scale?
   • A.
     A supermarket chain negotiates bulk discounts from its suppliers
   • B.
     A car manufacturer spreads the cost of designing a new model over a larger number of cars
   • C.
     A large firm borrows at a lower interest rate than a small firm
   • D.
     A university near a cluster of software firms starts courses that supply all the firms with trained programmers
   Show answerFrom the free A-Level Economics Multiple Choice Questions with Answers →
5. Question 51 mark · Market structures: concentration
   In an industry, the market shares of the six largest firms are 30 percent, 22 percent, 15 percent, 8 percent, 6 percent and 4 percent. The four-firm concentration ratio is:
   • A.
     81 percent
   • B.
     75 percent
   • C.
     85 percent
   • D.
     25 percent
   Show answerFrom the free A-Level Economics Multiple Choice Questions with Answers →
6. Question 61 mark · Monopoly
   A monopolist produces 1,000 units per week at the output where marginal cost equals marginal revenue, both 20 pounds. At this output, the price on the demand curve is 50 pounds and average total cost is 35 pounds. The monopolist's weekly supernormal profit is:
   • A.
     15,000 pounds
   • B.
     30,000 pounds
   • C.
     50,000 pounds
   • D.
     35,000 pounds
   Show answerFrom the free A-Level Economics Multiple Choice Questions with Answers →

The other 4 are in the free exams: the free A-Level Economics Practice Paper, the free A-Level Economics Multiple Choice Questions with Answers and the free A-Level Economics Essay Questions and Answers.

Key terms

The definitions and formulas A-Level Economics expects for business growth, market structures and the labour market, typeset as they appear on the paper.

Revenue

Total revenue is price times quantity; average revenue equals price, so the AR curve is the demand curve; marginal revenue is the change in total revenue from one more unit, and lies below AR when demand slopes down.

$$TR = P \times Q, \qquad AR = \frac{TR}{Q} = P, \qquad MR = \frac{\Delta TR}{\Delta Q}$$

Costs and diminishing returns

Fixed costs do not vary with output, variable costs do. In the short run the marginal product of a variable factor eventually falls, so marginal cost rises and cuts average cost at its minimum.

$$AC = \frac{TC}{Q} = AFC + AVC, \qquad MC = \frac{\Delta TC}{\Delta Q}$$

Economies and diseconomies of scale

Falling long-run average cost as output grows (technical, purchasing, managerial, financial, marketing economies), then rising costs from communication and coordination problems. Minimum efficient scale is where economies run out.

Profit maximisation

Output where marginal cost equals marginal revenue. Firms may instead pursue revenue maximisation ($MR = 0$), sales maximisation ($AC = AR$) or satisficing, which the principal-agent problem explains.

$$MC = MR$$

Market structures

Perfect competition (many firms, homogeneous goods, normal profit in the long run), monopolistic competition (differentiated products, excess capacity), oligopoly (few firms, interdependence, kinked demand, collusion, game theory) and monopoly (price maker, supernormal profit, deadweight loss, price discrimination). Concentration ratios measure where a market sits.

Competition policy and mergers

The Competition and Markets Authority can block mergers that reduce competition, fine cartels and regulate monopolies through price caps and quality standards. Mergers bring economies of scale but risk higher prices and X-inefficiency.

Demand for labour and marginal revenue product

Labour demand is derived from the demand for output: a firm hires while the marginal revenue product of a worker exceeds the wage. The elasticity of labour demand depends on substitutability, the share of labour in costs and the elasticity of product demand.

$$MRP = MPP \times MR, \qquad \text{hire while } MRP > W$$

Monopsony and the minimum wage

A single buyer of labour pays below the competitive wage and hires fewer workers, because its marginal cost of labour exceeds the wage. A minimum wage in a competitive market creates unemployment; in a monopsony it can raise both wages and employment.

Frequently asked questions

Other A-Level Economics topics

• Nature of economics and economic methodology
• How markets work: demand, supply, elasticity
• Market failure and government intervention
• Measures of economic performance
• Aggregate demand and aggregate supply
• National income, growth and the multiplier
• Macroeconomic objectives and policies
• Globalisation, trade and exchange rates
• Poverty, inequality and development
• The financial sector

All A-Level Economics topics · A-Level Economics exam guide · All free practice exams