Why is it important for a firm seeking to maximise profits to distinguish between the concepts of diminishing returns and economies of scale?

Mark scheme

Marking points from the official mark scheme (May/June 2017). The mark or mark type is shown in brackets.

1. [12] (a) Explanation of terms, clear mention of short run, long run. Link between diminishing returns/marginal cost and marginal revenue. Explanation of possible increases in profit in the long run if there are economies of scale from expansion. Level 4 (9-12 marks): for a sound explanation of the terms and a clear understanding of the principles involved, distinction between short/long run, link to profit.
2. [13] (b) Explanation of perfect competition and monopoly and discussion of the analysis of price/output decisions. Price likely to be higher, output lower and profit higher in monopoly – unless economies of scale allow a reduced price in long run monopoly. Level 4 (9-13 marks): for a sound explanation of the terms and a clear understanding of the principles involved, clear comparison of two market structures, conclusion.