Question 1: (a) What market structure is used to benchmark allocative efficiency, and why do we use it?

Question 1:

(a)              What market structure is used to benchmark allocative efficiency, and why do we use it? Illustrate and explain using a diagram

(2.5 marks for the diagram plus 2.5 marks for the explanation)

(b)              Why and how do monopolistically competitive firms fail to achieve allocative efficiency? Illustrate and explain using a diagram.

(2.5 marks for the diagram plus 2.5 marks for the explanation)

Question 2:

(a)              You are examining and reporting on the market performance of a very small number of firms that are known to often collude in setting output prices and quantities. Illustrate and explain using a diagram what affect this behaviour is most likely to have on the allocation of factors of production.

(2.5 marks for the diagram plus 2.5 marks for the explanation)

(b)              What will happen if one of these firms cheats on the others in some way? Illustrate and explain using a diagram.

(2.5 marks for the diagram plus 2.5 marks for the explanation)

Question 3:

(a)              Illustrate and explain using diagrams how a single seller within the market can maintain an inefficient allocation of resources;

(2.5 marks for the diagram plus 2.5 marks for the explanation)

(b)              Are there any advantages to a single market seller and how do they compare to its perceived disadvantages.

(2.5 marks for identifying advantages and 2.5 marks for identifying disadvantages)

Question 4:

(a)              Assuming a constant wage rate, illustrate and explain using a diagram, how a firm’s marginal costs of production are at a minimum when its marginal product is at a maximum;

(2.5 marks for the diagram plus 2.5 marks for the explanation)

(b)              Illustrate and explain using a diagram how a firm’s long-run average cost curve comes into existence from a multi-plant operation;

(2.0 marks for the diagram plus 2.0 marks for the explanation)

(c)              Identify and describe the significance of the various portions ofthis diagram. (1 mark)

Question 5:

Illustrate and explain using diagrams; two (2) of the market mechanisms that are used for controlling pollution as an externality.

[2.5 marks for each diagram (total of 5 marks) plus 2.5 marks for each explanation (total of 5 marks)]