The document outlines an A Level Economics revision workshop covering various microeconomics topics. The workshop includes 5 sessions: (1) costs, revenues, business objectives and competition; (2) concentrated markets and government intervention; (3) international trade and exchange rates; (4) economic development; and (5) current UK policies and global economic performance. Session 1 focuses on distinguishing between short-run and long-run costs and revenues, profit maximization conditions, and evaluating perfect competition and contestable markets.

1. A Level Economics – Year 2 (A2) Revision Workshop
Session one – Presentation to go with Workbook

2. A Level Economics – Year 2 (A2) Revision Workshop
Today’s event:
02
Session Topic
1
Costs, Revenues, Business Objectives and
Competition
2
Concentrated Markets and Government
Intervention
Break (back for 12:15)
3 International Trade and Exchange Rates
Lunch (back for 13:55)
4 Economic Development
5
Current UK Policies and Global Economic
Performance

3. A Level Economics – Year 2 (A2) Revision Workshop
Your download link:
www.tutor2u.net/a2econ2016.pdf

4. A Level Economics – Year 2 (A2) Revision Workshop
Session 1
Costs, Revenues, Business Objectives and Competition
03

5. A Level Economics – Year 2 (A2) Revision Workshop
Session 1 outline
03
Distinguishing between the short run and long run
Theory of costs
Theory of revenues
Profit maximising and business objectives
Evaluating perfect competition
Evaluating contestability

6. A Level Economics – Year 2 (A2) Revision Workshop
Short Run and Long Run
Short run
• Definition: The period of time over which at least one factor of
production is fixed
• Example: A coffee shop in a week can only increase the number of
coffees made by employing more labour, because capital and land is
fixed
Long run
• Definition: The period of time over which all factors of production are
variable
• Example: Over the course of 6 months, a coffee shop could increase the
number of coffees made by employing more labour, AND expanding the
premises and buying more coffee machines and fridges
03

7. A Level Economics – Year 2 (A2) Revision Workshop
Cost curves
Output
Costs
04
Average cost
• Cost per unit
Marginal cost
• Additional cost of producing one more
unit
Fixed cost
• Costs incurred even when output is zero
Variable cost
• Costs varying directly with output
AC
MC
AFC
AVC

8. A Level Economics – Year 2 (A2) Revision Workshop
Explaining the shape of cost curves
04
Gains from specialisation and division
of labour as more workers are added
Scarcity of capital and other fixed
factors of production
For example, technical economies,
financial economies, purchasing
economies
Coordination issues, low morale,
principal-agent problem

9. A Level Economics – Year 2 (A2) Revision Workshop
Revenue – key concepts
Total
revenue
• The total value of sales
• Price x Quantity (or Profit + Total Costs)
Average
revenue
• Revenue per unit sold ( = price)
• Total Revenue ÷ Quantity Sold
Marginal
revenue
• The additional revenue earned from selling one more unit
04

10. A Level Economics – Year 2 (A2) Revision Workshop
A firm’s revenue curve
05
Output
Revenue
Output
Revenue
Perfect
Competition
Imperfect
Competition
AR = MR
AR
MR

11. A Level Economics – Year 2 (A2) Revision Workshop
Bringing it all together: profit
05
• The minimum amount of profit that a
business can earn to remain in the industryNormal Profit
• Any profit earned above normal profit
Supernormal
(abnormal) Profit
• Marginal Revenue = Marginal Cost
Profit Maximising
Condition

12. A Level Economics – Year 2 (A2) Revision Workshop
Profit maximising condition
04
Q
P
SUPERNORMAL
PROFIT

13. A Level Economics – Year 2 (A2) Revision Workshop
The role of profit
05
Provides funds for
reinvestment / R&D
Rewards shareholders for
risk-taking
Saved for the future
Acts as a signal to existing
and new businesses
The role of profit

14. A Level Economics – Year 2 (A2) Revision Workshop
Alternative Business Objectives
06
Revenue
Maximisation
Productive
Efficiency
Product
Differentiation
Normal Profit /
Limit Pricing
Dynamic
Efficiency
Satisficing
Behaviour
Social
Responsibility
Predatory
Pricing
Allocative
Efficiency
MR = 0 Lowest AC
AR = AC
AR = MC
Now indicate
these points on
the diagram:
• Revenue max
• Productive
efficiency
• Normal Profit
• Allocative
efficiency
Remember that
these conditions
simply give you
the
LEVEL OF
OUTPUT
You need to read
UP to the AR
/demand curve
to work out the
PRICE for that
level of output

15. A Level Economics – Year 2 (A2) Revision Workshop
Alternative Business Objectives – Revenue max
06
Q
P

16. A Level Economics – Year 2 (A2) Revision Workshop
Alternative Business Objectives – Productive
Efficiency
06
Q
P

17. A Level Economics – Year 2 (A2) Revision Workshop
Alternative Business Objectives – Normal Profit
06
Q
P

18. A Level Economics – Year 2 (A2) Revision Workshop
Alternative Business Objectives – Allocative
Efficiency
06
Q
P

19. A Level Economics – Year 2 (A2) Revision Workshop
Charity Shop
Energy Firms
Tech Startups
Nationalised Firms
Possible objectives – time to think
06
Charity Shop
• Social responsibility? Revenue maximising? Productive efficiency?
Energy Firms
• Market share? Profit maximisation?
Tech Startups
• Dynamic efficiency? Social responsibility?
Nationalised Firms
• Allocative efficiency? Productive efficiency?

20. A Level Economics – Year 2 (A2) Revision Workshop
Perfectly competitive markets - characteristics
07
No dominant
firms
Many buyers &
sellers
Perfect
information
Homogeneous
goods
No barriers to
entry / exit
Firms are
price-takers

21. A Level Economics – Year 2 (A2) Revision Workshop
Perfect competition diagrams: SR to LR
07
S1
P1
AR1 = MR1
Q1
P1
Q1

22. A Level Economics – Year 2 (A2) Revision Workshop
Should the government aim to make all
markets perfectly competitive?
07
Arguments in favour
• Productively efficient: in the long run (in theory!), thereby
minimising waste
• Allocatively efficient: in the short run and long run (in theory!),
thereby ensuring resources are used appropriately
• Welfare gains: maximise consumer surplus, lowest possible prices
• Internationally competitive: low prices can boost export volumes

23. A Level Economics – Year 2 (A2) Revision Workshop
Should the government aim to make all
markets perfectly competitive?
07
Arguments against
• Productively inefficient: many small firms reduces the chance of growth and
achieving economies of scale and scope
• Allocatively inefficient: consumers like choice – homogeneity does not allow
this
• Dynamically inefficient: lack of LR supernormal profits minimises R&D and
investment opportunities, limiting economic growth
• Information free-riders: perfect knowledge prevents profit being earned from
good ideas or ideas that are costly to develop

24. A Level Economics – Year 2 (A2) Revision Workshop
Should the government aim to make all
markets perfectly competitive?
07
General Points
• Unrealistic characteristics / assumptions e.g. always some barriers to
entry/exit, no such thing as perfect information
• Unachievable aim - too costly for government as well as unrealistic;
impossible if an industry requires networks
• Transaction costs: too costly for consumers
• International dimension: domestic competitive firms may be
undercut by low-cost monopolies from abroad

25. A Level Economics – Year 2 (A2) Revision Workshop
Contestable markets – characteristics & outcomes
08
Very low
barriers to
entry
Very low
barriers to
exit
Potential for
competition
Any number
of firms
No sunk costs
/ economies
of scale
Making markets more
contestable is a keystone
of competition policy
Contestable markets may
be susceptible to hit and
run competition
The threat of competition
forces incumbent firms to
behave competitively
Incumbent firms tend to
operate at the normal
profit point

26. A Level Economics – Year 2 (A2) Revision Workshop
Contestable markets – a possible diagram
08
Q
P

27. A Level Economics – Year 2 (A2) Revision Workshop
Types of barriers to entry
08
Economies of scale
Vertical Integration
Control of Technology

28. A Level Economics – Year 2 (A2) Revision Workshop
Types of barriers to entry
08
Licences
Patents
Public franchise

29. A Level Economics – Year 2 (A2) Revision Workshop
Types of barriers to entry
08
Brand proliferation
Predatory pricing
Brand loyalty

30. A Level Economics – Year 2 (A2) Revision Workshop
08
What do
YOU
think?
No professional qualifications
Any location
Minimal start-up costs
Easy to exit the industry
Hire rather than buy planes
Low prices
Reduced costs – out of the
way locations, few staff
Evidence of new firms e.g.
Tesco Bank, Atom Bank
Industry dominated by large
companies with brand loyalty
Start-up costs high: pilots,
groundcrew, licences, landing
slots etc
Sunk costs: advertising
Strong consumer loyalty due
to high switching costs /
inconvenience

31. A Level Economics – Year 2 (A2) Revision Workshop
Discuss the impact on consumers of the mobile
network market becoming more contestable.
09
POINT
• Increasing contestability forces firms to operate at a point where normal
profits are earned - this lowers prices and raises output, therefore increasing
consumer surplus
THIS IS BECAUSE…
• Firms must aim for normal profit so as not to attract new firms to the market
risking "hit and run" competition and a loss of market share. There is a strong
battle to gain market share amongst UK mobile network providers

32. A Level Economics – Year 2 (A2) Revision Workshop
Discuss the impact on consumers of the mobile
network market becoming more contestable.
09
IN THE CASE OF THE UK MOBILE NETWORK MARKET…
• There is a small number of network providers, each of which has brand loyalty
due to lengthy contracts - this allows prices to be high. A more contestable
market could lower prices for consumers and make contracts less confusing
HOWEVER…
• It is difficult to see how barriers to entry in this market could be lowered, and
the market made more contestable, because handset prices may be dictated
by phone manufacturers such as Sony and Apple

33. A Level Economics – Year 2 (A2) Revision Workshop
Discuss the impact on consumers of the mobile
network market becoming more contestable.
09
FURTHERMORE…
• There are large economies of scale needed for good national network
coverage - so consumer experience could be worse with increased
contestability
LINK BACK TO THE QUESTION…
• Consumer satisfaction may actually be reduced rather than increased as
a result of increased contestability in the mobile network provider
market

34. A Level Economics – Year 2 (A2) Revision Workshop
Additional Activities
10
Calculating costs
Applications of barriers to entry
Profit maximisation - essay frame
Efficiency in perfect competition – essay frame