Analyse whether there is a link between the marginal cost of a firm and (i) its variable cost; (ii) the supply curve of the industry to which the firm belongs.

Mark scheme

Marking points from the official mark scheme (Feb/Mar 2019). The mark or mark type is shown in brackets.

1. [12] Marginal cost changes with the variable cost change; MC is firm's supply curve in perfect competition, sum of firm's supply curves gives industry supply. Does not apply with imperfect competition.
2. [9-12] L4: for a clear explanation of the links and correct analysis of both parts.
3. [7-8] L3: for a clear analysis of one part – probably the link to variable cost – with confusion over the second part.
4. [5-6] L2: for a briefer explanation of one part and omission of the second part.
5. [1-4] L1: for an answer that has some basic correct facts but includes irrelevancies and errors of theory.
6. [13] Perfect competition assumes profit maximising. Oligopoly usually assumes collusion and a less volatile price. It still can assume profit maximising. However, with collusion the profit maximising output/price can be for the industry and each firm is given an output quota which is not necessarily the profit maximising output for that firm. A firm can compete by non-price competition or break the agreement.
7. [9-13] L4: for a clear analysis with a good structure on the oligopoly section.
8. [7-8] L3: for a clear analysis of perfect competition but less competent analysis and development of oligopoly. Profit maximising stated, but collusion not fully developed.
9. [5-6] L2: for a weaker answer of the differences and links.
10. [1-4] L1: for an answer that has some basic correct facts but includes irrelevancies and errors of theory.