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Economics IGCSEPDF 77
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These costs relate to the fixed factor of production (Land or Capital) and are
independent of output.
The firm must pay the rent for its factory building or premises, whether it
produces 1 unit or 100,000 units.
Costs paid to protect the business assets (capital) against risks like fire or
theft.
The annual insurance premium is set regardless of the volume of production
in the factory during that year.
○
○
Monopolies often achieve significant
due to their size.
This can lead to
than a host of small competitive
firms. The monopolist may pass these cost savings on as
to the
consumer.
○
Furthermore, high monopoly profits can fund extensive
, resulting in genuinely new or high-quality products over
time.
○
○
Due to high
, monopolists face no competitive pressure.
The monopolist is likely to
than
the competitive equilibrium, forcing consumers to pay more and reducing their
purchasing power.
○ An: Consumers face reduced choice as there are no close substitutes, and the
lack of competition may lead to complacency and poor quality or customer
service.
○ Overall, competitive markets are generally better for consumers in the short
run due to low prices and high choice. Monopoly is only beneficial if the firm is a
natural monopoly where economies of scale are so great that the single firm's
low-cost price is lower than any price competitive firms could offer.
● K: Profit maximisation is achieved when {TR} - {TC} is greatest. A new firm may face
high initial costs and low demand.
● A: The primary objective for a new firm is Survival. It must ensure TR >= TC (at least
break-even) to remain operational in its early stages.
● An: The firm may choose to set a low price initially to attract customers and build a
market presence, even if this means accepting a lower profit margin or temporary loss.
● An: The firm may prioritise Growth (increasing market share) to gain recognition and
secure future customers, which is more important than short-term maximum profit.
● E: Once the firm has survived the initial period and established a customer base, it is
likely to switch its objective to profit maximisation.
EVALUATION
○ K:
○ A:
Fixed Cost 2: Insurance Premiums
○ K:
○ A:
P1:AdvantageofMonopolyfor Consumers (Price/Quality)
K:
An:
economiesof scale
lower production costs
lower prices
An:
Researchand
Development (R&D)
P2: Disadvantage of Monopoly for Consumers (Price/Choice)
K:
barrierstoentry
An:
restrictoutputandchargeahigherprice
Q3: Monopoly vs. Competitive Market for Consumers (8 Marks)
●
Q2: Reasons Against Profit Maximisation for a New Firm (6 Marks)