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Summary economics paper 3 essay plans.
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2019 paperIn Extract A, lines 15–16, it was suggested that some firms may respond to
the advertising ban by cutting the prices of their products.
Using game theory and the information provided in Figure 1 and Extract A,
discuss the effects on firms of cutting prices in an oligopolistic market.
One effect is to preserve their market share.
Makes the market more contestable as there are lower sunk costs as no one
can gain an advantage through advertising.
Threat of entry has become more real.
Walkers may be adopting limit pricing.
Limit pricing- a firm is able to maximise profits in the short run, but they
choose not to they either make normal profits or small amounts of
supernormal profits. Set their price below the average cost of potential
entrants. They can do this by tapping into their economies of scales. Their
average cost is likely to be lower as they are able to bulk buy potatoes. So
therefore, can charge a lower price and still make profits unlike the new
entrants who will be making a loss or very little profits. This will deter new
entrants to enter the market. After walkers can increase prices again.
EV
Game theory illustrates if they were to lower their price other firms such as KP
will also lower their prices as they are interdependent. Therefore, there is
unlikely to be a massive increase in demand for walkers and likely fall in
revenue and profits it is likely to backfire.
2019 paper
Discuss whether borrowers benefit from microfinance. Make reference to
Mozambique in your answer.
Firms able to use the finance to invest in new capital and innovation.
Reduce their cost of production as they can operate more efficiently fall in
variable costs.
, Reduction in their costs causes mc and ac to fall as a result the price they
charge for their product falls from P1 to P2. Their output increases from Q1 TO
Q2. Profits increase from area P1ABC1 to P2DEC2. These additional profits can
be invested into the latest technology and R&D. as a result dynamic efficiency
rises.
EV
Given that figure 3 shows the average interest rate is 75% on these loans in
some cases its 200%. It is unrealistic they can pay it back and therefore shutting
down. Therefore, it does now benefit them and is highly detrimental to take
out these loans.
Pricing and non-pricing strategies
1. Limit pricing
EV
Just because you offer a lower price it may not deter new firms from coming
into the market. Firms can compete on a quality basis as well as a price
basis. People may enter the market and offer a better quality, so consumers
are still willing to switch.
Amazon fresh has entered the supermarket industry- this is due to them
being so large and earning supernormal profit from their other industries
that they can compete on a price level even if they don’t have the same
market share as Tesco. Big players in market can still enter.
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