A Level Economics Revision List 2027

A monopolist faces the market demand curve and its marginal cost data below (quantity in thousands of units): at 4,000 units, price = 20 pounds and marginal cost = 8 pounds; at 5,000 units, price = 18 pounds and marginal cost = 10 pounds; at 6,000 units, price = 16 pounds and marginal cost = 12 pounds. Marginal revenue at each of these outputs is 12 pounds, 10 pounds and 8 pounds respectively. Identify the profit-maximising output and price, and state whether price is above or below marginal cost at that output.

1. Compare MR and MC at each output: at 4,000 units, MR (12) exceeds MC (8), so expanding output is worthwhile; at 5,000 units, MR (10) equals MC (10) exactly.
2. At 6,000 units, MR (8) is below MC (12), so this output is not worth reaching, producing the extra units would cost more than they earn.
3. Apply the MR=MC rule: the profit-maximising output is 5,000 units, where MR = MC = 10 pounds.
4. Read the price from the demand data at that output: at 5,000 units, price = 18 pounds.
5. Compare price to marginal cost at this output: price (18 pounds) is above marginal cost (10 pounds), confirming the classic monopoly outcome that a profit-maximising monopolist sets price above marginal cost, unlike a perfectly competitive firm, which sets price equal to marginal cost.

List two assumptions of the theoretical model of perfect competition.

Any two of: many buyers and sellers, an identical/homogeneous product, perfect information, or no barriers to entry or exit.