economics

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- 3 - N05/3/ECONO/HP1/ENG/TZ0/XX/M
Paper Specific Markscheme
In addition to the assessment criteria use the paper-specific markscheme below. Award up to the maximum marks as indicated. Examiners should be aware that candidates may take a different approach, which if appropriate should be fully rewarded.

1. (a) Explain the differences between monopolistic competition and oligopoly as market structures. [10 marks]
• large number of firms (m.c) versus a few dominant firms (oligopoly) • differentiated product (m.c) versus differentiated or standardized (oligopoly) • low barriers to entry (m.c) versus high barriers to entry (oligopoly) • interdependence of firms in oligopoly

• comparison of the demand curves
Examiners should be aware that candidates may take a different approach, which if appropriate should be rewarded.
(b) Discuss the differences between a collusive and a non-collusive oligopoly. [15 marks]

Collusive Oligopoly
• formal (cartel) or informal agreement (tacit collusion) among producers to limit competition between themselves
• they act as if they were a monopoly
• discussion of the consequences of the firms acting as a monopoly • impact on consumers
• members may compete against each other using non-price competition • regulations to prevent collusion

Non-Collusive Oligopoly
• no agreement exists between producers
• existence of non-price competition with the possibility of price wars • the kinked demand curve as one model to describe oligopoly behaviour • game theory
• contestability of markets prevents firms from exploiting monopoly power

It would be possible to earn full marks on this question without using diagrams, however use of appropriate diagrams should be rewarded.
Discussion (in part (b)) of only a collusive or only a non-collusive oligopoly should be awarded up to a maximum of [7 marks].
Examiners should be aware that candidates may take a different approach, which if appropriate should be rewarded....
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