Explain the difference between perfect competition and monopoly and, with the help of diagrams, distinguish between normal profit and supernormal profit, considering whether supernormal profit is possible in perfect competition.

Mark scheme

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

1. Explanation of distinction mentioning barriers to entry, ability to control prices, information, whether products are identical, numbers of firms. Diagrams can be in either perfect competition or monopoly relating average revenue to average cost at maximum profit output. Supernormal possible in short run in perfect competition will be competed away in long run by entry of new firms and increase in supply.
2. L4 (9-12): for clear distinction between the markets, clear diagram and clear explanation of increased competition and normal profit in the long run through increased supply
3. L3 (7-8): for a less developed answer mentioning only some of the different criteria for the markets, or not fully explaining the short and long run position
4. L2 (5-6): for a briefer explanation, or an inaccurate diagram, or an omission of the long run position
5. L1 (1-4): for an answer that has some basic correct facts but includes irrelevancies and errors of theory
6. Discussion of alternative aims; behavioural, managerial, satisficing. These will not occur in perfect competition. Prisoner's dilemma involves cooperation for maximum benefit so requires the ability to trust other participants in decision-making.
7. L4 (9-13): for a clear comment on two different aims and a consideration of the second part of the question
8. L3 (7-8): for a weaker comment on two aims and a briefer comment on the second part of the question
9. L2 (5-6): for a brief undeveloped answer about the aims and very scant comment on the second part of the question
10. L1 (1-4): for an answer that has some basic correct facts but includes irrelevancies and errors of theory