## A2 Revision – Imperfect Competition AR, MR and TR curves

You should note the following from the graphs:

• to sell an additional unit of a commodity, the monopolist must reduce the price of all units sold. This therefore means the AR curves falls.

• as the price on all units must be lowered to sell the higher output, MR is lower than the price of the marginal unit(AR)

• TR at first increases with output but as price is reduced to sell more goods and services, eventually falls.

• where MR = 0 TR is at a maximum.

## A2 Economics: Two ways of calculating the equilibrium level of income

Went through an A2 multiple-choice question on calculating the equilibrium level of income with my A2 class. There are two ways that it can be worked out. Here is the question:

**In a closed economy with no government C = 30 + 0.8 Y and I = 50, where C is consumption, Y is income and I is investment.**

What is the equilibrium level of income?

A 64 B 80 C 250 D 400

Below is the most common way of working the question out:

**Y = C + I**

Y = 30 + 0.8Y + 50

0.2Y = 80

Y = 400

Here is the other way that you should be able to work out the equilibrium

Remember: Savings = Income – Consumption

**S = Y – C**

S = Y – (a + cY)

S = Y – a – cY

S = -a + (1-c) Y

So if we put the figures into the equation you get:

50 = -30 + (1-0.8) Y

50 = -30 + 0.2Y

80 = 0.2Y

Y = 400

## A2 Revision: Multiple-Choice question on shape of Total Cost curve

Been doing some A2 revision courses this holidays and this question came up. In the last two November A2 exams there have been multiple choice questions concerning the point on the Total Cost curve when MC, AVC, and ATC are at their lowest point. In the graph note the corresponding points on the Total Cost. They usually ask you where on the Total Cost line is the lowest point on the MC curve/AVC curve etc.

**Remember:**

MC cuts ATC and AVC at their lowest points. The firm will supply where the price is greater than or equal to MC. Thus the individual firm’s supply curve consists of the firm’s MC curve, but only the portion above AVC . The reason for this is that where P=AVC the firm will shut down operations because they are barely covering avoidable costs.

## A2 Revision – Perfect Competition and Shut-down, Breakeven Points

I went through this graph with my A2 class. Note that the firm’s short-run supply curve starts at P4. Useful for multiple-choice questions.

## Economics Study Skills: Essay Writing

With increasing numbers of students struggling to write well structured essays in economics I decided that they needed some guidance and therefore produced a booklet on how to plan and structure your essay – link to download at the bottom of the post. It looks at how you integrate the following into your essays whether at CIE or NCEA Scholarship level and shows examples.

*Knowledge and understanding ** – Demonstrate knowledge and understanding.
*

*Application **– Interpret and apply knowledge and understanding to information presented in written, numerical or graphical form.
*

*Analysis ** – Analyse economic issues and arguments, using relevant economic concepts, theories and information, and communicate conclusions in a clear, reasoned manner.
*

*Evaluation ** – Critically evaluate economic information, arguments, proposals and policies, taking into consideration relevant information and economic principles and distinguishing facts from hypothetical statements and value judgements.
*

It also contains – the box plan – 12 different sentence types (see below) – command words – **PREC** **P**oint **R**eason **E**xample **C**oncluding sentence.

I have taken some material from Dr Ian Hunter’s publications and would recommend the books he has for sale on the Write That Essay website.

Click the link below to download the booklet.

## Economics website for IGCSE AS A2 and IB courses

Want to learn or need assistance with Economics? Are you studying or teaching A Level Economics, Advanced Placement, or International Baccalaureate (IB)?

Help is at hand, elearnEconomics assists individuals studying Economics. This site covers a wide range of courses and individuals have the ability to customise their course or do extension work. It’s simple, easy to use and very cost effective.

eLearnEconomics is a comprehensive online economics learning resource. It is for both students AND teachers. Students study the concepts of each topic with the key notes, then review those concepts with the audio/video and flash card sections and finally test themselves in the written answer and multi-choice sections. The multi-choice section records student scores enabling them to track their progress and build their confidence leading into exams.

Teachers have the ability to monitor students progess within the teachers’ administration section. Students can be arranged into class groups and full reports generated to quickly identify problem areas. These high quality PDF reports can also be presented at parent/teacher evenings. Click the link below to access the site.

## A2 Revision – Cost Curves

Firms, according to the analysis we use predict their behaviour, are very interested in their marginal cost. Since the term marginal means additional or incremental, marginal costs refer to those costs that result from a one-unit change in the production rate. We find marginal cost by subtracting the total cost of producing all but the last unit from the total cost of producing all units, including the last one. Marginal costs can be measured, therefore, by using the formula:

**Marginal Cost = Change in Total Cost ÷ Change in Total Output
**

**Average Fixed Costs (AFC)**: they continue to fall throughout the output range. The gap between ATC and AVC = AFC

**Average Variable Costs (AVC)**: the form it takes is U-shaped: first it falls; then it starts to rise. It is certainly possible to have other shapes of the AVC.

**Average Total Costs or Average Costs (ATC or AC)**: similar shape to the average variable cost. However, it falls even more dramatically in the beginning and rises more slowly after it has reached a minimum point. It falls and then rises because average total costs is the summation of the AFC and the AVC curve. Thus, when AFC plus AVC are both falling, it is only logical that ATC would fall, too. At some point, however, AVC starts to increase while AFC continues to fall. Once the increase in the AVC outweighs the decrease in the AFC curve, the ATC curve will start to increase and will develop its familiar U-shape. Where MC = ATC this is the lowest point on the ATC curve and is therefore the cheapest production for the firm. This is called the technical optimum.

**Marginal Cost (MC)** : it cuts ATC and AVC at their lowest points. The firm will supply where the price is greater than or equal to MC. Thus the individual firm’s supply curve consists of the firm’s MC curve, but only the portion above AVC. The reason for this is that where P=AVC the firm will shut down operations because they are barely covering avoidable costs.