RI 2024 H2 Firms and Decisions - A guide to essay questions

Y5 H2 Economics 2024 Firms and Decisions - Tutorial Package © Raffles Institution 1 Economics Department Firms and Decisions Section C: Essay Guiding Questions Essay Q1: Part (a) • Clarify what is the meaning of impact on the airline operators eg. impact on profits . • Make reference to the preamble to address the type of cost that have changed and how it affected profits respectively. • What is the assumption that must be made of the airline operators? • Support your answer with the use of a firms’ diagram and explain the respective costs on profits separately. • Deduce the overall change in cost for the firm (i.e examine the extent of change in both the variable and the fixed cost) and hence the overall impact on profits. Part (b) • Note that the command word is Discuss, hence require limitations and an evaluation to the respective strategies that the firms will adopt in response to above development. • Key word of “ likely respond” typically refer to the strategies adopted by the firms given the changes in demand/ AR and AC. • Develop at least one strategy to tackle cost changes and one strategy in response to increased competition and how it affects firms’ AR. • Analysis for the respective strategies highlighted should be explained using relevant firms’ framework and a discussion of the limitations of the respective strategies should be developed Essay Q2 Part (a) • You need to first clarify the market structure and the characteristics of the market structure with respect to fast food chain. • Link the above understanding of how this market structure type influence the AR curve and MR curve and note the assumption of the firm that is that is assumed to be profit maximizing. • Explain how the respective characteristics mentioned determine the prices and show at least 2 different examples. • eg. 1 could be how the characteristic of few dominant firms → mutual interdependence results in price rigidity (bring in the kinked demand curve theory) or • eg.2 how high BTE and imperfect information results in demand / AR remaining high and price inelastic; price setter, and P>MC at the profit maximizing output. • Note that answer should apply to the context of fast food chains in the analysis. Part (b) • Note that command word is “discuss whether”, hence a need to explain how it work s and limitations for each strategy raised (i.e 2 sided argument) • Analyse how innovation is a strategy that can be adopted to increase firms’ profits (you need to give examples of innovation and to apply to whether this strategy influence the firms’ AR or AC- ask yourself if the innovation process or product innovation ) + provide limitations to the strategy • Do the same above with an alternative strategy and its limitations. • Support your answer with the use of well drawn firms’ diagram and make reference to the profit maximising output. • Note that you have to provide an overall eval