Co-operatives play a key role in the Kenyan economy, accounting for 43% of the country's output. They operate in a number of industries, some of which come close to a monopoly and some of which are more competitive. There are many co-operative farms growing cotton. The Kenyan Government is seeking to develop a vertically integrated textile industry.

Mark scheme

Marking points from the official mark scheme (May/June 2014). The mark or mark type is shown in brackets.

1. [4] 1 mark each for two characteristics:
2. jointly owned by their members (could be workers or customers)/members are shareholders
3. they exist for the mutual benefit of the members
4. members share profits
5. each member has a vote
6. have limited liability
7. 1 mark each of two descriptions:
8. co-operatives may be owned by a number of groups, e.g. workers, consumers
9. profits can be distributed to consumers on the basis of how much they spend
10. farming co-operatives may benefit from buying and selling in bulk
11. voting is not based on size of shares held
12. members can only lose their investment in the co-operative society
13. [6] 1 mark for identifying each of three ways, e.g.:
14. the number of buyers and sellers in the market/industry
15. whether there is free entry or exit into the market
16. amount of information firms and consumers possess
17. influence on price
18. products are homogeneous in perfect competition and may not be in monopoly
19. level of profit earned in the long-run
20. 1 mark for each of three explanations:
21. many buyers and sellers in perfect competition but only one seller in monopoly
22. barriers to entry and exit in a monopoly but free entry and exit in perfect competition
23. perfect information in perfect competition but not monopoly
24. firms in perfect competition are price takers and monopolies are price makers
25. in perfect competition the products made by the firms are exactly the same
26. monopolies make abnormal profits whereas firms in perfect competition only make abnormal profits in the short run
27. [4] 1 mark for a definition of vertical integration/for a distinction between backwards integration and forwards integration.
28. Up to 2 marks: ensures supply of raw materials at a reasonable price/reduces the chain of production "cuts out the middle man” (1) as the firm can directly provide raw materials for manufacture (1).
29. Up to 2 marks: may restrict access of competitors to raw materials (1) which may make their prices higher or restrict their output (1).
30. Up to 2 marks: ensures outlets for products (1), which ensures products get to market (1).
31. Up to 2 marks: ensures products are well displayed and promoted (1) which can increase demand (1).
32. Up to 2 marks: may enable economies of scale to be gained (1), relevant example, e.g. financial economies.
33. Note: a maximum of 4 marks overall.
34. [6] Up to 4 marks for why it might increase:
35. Up to 2 marks: if demand has increased at the same time (1), revenue may rise (1).
36. Up to 2 marks: if price has been lowered to sell more (1), revenue will rise if demand is elastic (1).
37. Up to 2 marks: higher output may reduce average costs (1) as greater advantage may be taken of economies of scale (1).
38. 1 mark for profit will rise if revenue increases by more than costs.
39. Up to 4 marks for why it might not increase:
40. Up to 2 marks: there may be no demand for the extra output (1) and so revenue may not change (1).
41. Up to 2 marks: if price has been lowered and demand is inelastic (1), revenue will fall (1).
42. Up to 2 marks: higher output may increase average costs (1), diseconomies of scale may be experienced (1).
43. 1 mark for profit may fall if costs rise by more than revenue.
44. Note: a maximum of 6 marks overall.