A-LevelEconomicsThe price system and the microeconomy9708/41 · Oct/Nov 2019 · Q425 Marks
What relation is there, if any, between the law of diminishing returns and internal and external economies of scale?
- (a)What relation is there, if any, between the law of diminishing returns and internal and external economies of scale?[12]
- (b)'It is a general rule that firms maximise profits. They do so where the average revenue from the sale of a product is equal to its marginal cost of production.' Do you agree with this statement?[13]
Mark scheme
Marking points from the official mark scheme (Oct/Nov 2019). The mark or mark type is shown in brackets.
- [12] Diminishing returns: short run.
- [12] Economies of scale: long run.
- [12] Diminishing returns can occur on each of the curves representing different scales of output.
- [13] The assertion only occurs in perfect competition where AR = MR.
- [13] Then profit maximisation is, by default, where MC = MR = AR.
- [13] Firms may not maximise profits and have alternative aims; it is not a general rule.
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