Analyse the factors which determine the price of a firm's product and its output in monopolistic competition.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2018). The mark or mark type is shown in brackets.

1. [12] (a) Analysis of the role of marginal costs and marginal revenue in determining profit maximising output and how the price is determined on the downward sloping demand curve. Reference to the short term and the long term equilibrium positions.
2. [13] (b) An explanation of the sales revenue maximisation model (SRM). How SRM means that both price must be lower and quantity must be greater than in profit maximisation. Consumers gain through lower prices and greater output, managers gain if salaries linked to revenue not profits and shareholders lose as profits are reduced. Reference to the separation of ownership and control allowing SRM.