Confused with (Economics unit 3 Jan 2012 paper) Q3

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http://www.edexcel.com/migrationdocuments/QP%20GCE%20Curriculum%202000/January%202012%20-%20QP/6EC03_01_que_20120307.pdf

I got the answer as A through elimination but don't really understand why it is A because the mark scheme confuses me. Could anyone explain why A is the right answer?

thanks

Posted Mon 31st December, 2012 @ 18:00 by .

5 Answers

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oh yeah that one is a tricky one even teacher was shaky on it

Answered Tue 1st January, 2013 @ 09:40 by Lottie
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:S I think i understand it now anyways 

Answered Tue 1st January, 2013 @ 15:31 by .
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i remember he said its in the exexcel  big book the one by the examiners do you have it? explaing to me plz i have no will power to revise no more :(

Answered Tue 1st January, 2013 @ 15:45 by Lottie
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Yeah I have the massive edexcel book but no revision guide but it's not really in that - it's just kind of describes the theory around the question.  This is what I did anyways.

- First of all Eliminate option E because the second diagram clearly shows that the firm is making supernormal profit so it can't be making a loss.  Thats 1 mark.

- Secondly Eliminate B because in the long run the diagrams show that the firm will tend towards normal profit. After  6000 units you can see that profit falls due to new entrants in the firm. This means that they will not be operating at the level of maximum revenue in the LR.

Or you can eliminate C (but this is if you notice that the question relates to Perfect competition) In perfect competiion there is freedom to entry and exit so it can't be option C.

The linear TR shows perfect competition and since you can see that the TR and TC are at same level, this shows normal profit in the long run- which is a profit situation in PC.

so thats another mark

Then I defined what profit maximisation is, which is where mc=mr. thats the third mark.

then I wrote the answer as A which is the fourth mark

Answered Tue 1st January, 2013 @ 16:26 by .
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*new entrants in the industry, not in the firm

Answered Tue 1st January, 2013 @ 16:27 by .