Question 2
[Maximum number: 20]
With the help of a diagram, evaluate the impact on consumers and producers of an increase in market contestability.
[20]
OR
CAIE A-Level Economics 7.6.4 Firm Performance by Market Structure
Practise comparing price, output, profit, shutdown and efficiency across market structures using cost-revenue diagrams, contestability, collusion and non-price competition.
How this is tested
- locate profit-maximising output at MC=MR and read price, average cost and profit from the diagram
- compare short-run and long-run profit or shutdown outcomes under different entry conditions
- evaluate market power through allocative, productive, dynamic and X-efficiency plus contestability