Cambridge International AS and A Level Economics: Market structures and barriers (9708) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover outcomes 7.6.1, 7.6.2, 7.6.3 and 7.6.5 of the Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028. Topics 1 to 6 are AS Level content and topics 7 to 11 are A Level content; this unit is A Level only. All firms, markets and figures are invented, and money is in currency units (cu). Read the study guide and the revision notes first. The course hub and checklist show the rest of the course, and the free diagnostics help you find gaps.

Questions

1. State two features of a perfectly competitive market. [2]

2. Distinguish between monopolistic competition and oligopoly in terms of (i) the number and size of firms and (ii) barriers to entry. [4]

3. Identify the main type of barrier to entry (legal, market, cost or physical) in each case. [4]

(a) A firm holds the only licence to run a ferry route. (b) A well-known brand spends heavily on advertising each year. (c) One company owns every quarry in a region that contains the only limestone deposit. (d) A new firm would need equipment worth 40 million cu to compete.

4. The table shows sales in Country D’s tinned fish market. Total sales are 300 million cu.

Firm	P	Q	R	S	T	All others
Sales (million cu)	60	45	30	30	15	120

(a) Calculate the three-firm concentration ratio. [2] (b) Calculate the four-firm concentration ratio. [1] (c) Firms Q and R merge. Calculate the new three-firm concentration ratio. [2]

5. A rail line has a fixed cost of 1,200,000 cu a year and a variable cost of 3 cu per passenger. Annual demand is 300,000 passengers.

(a) Calculate average cost if one firm runs the line. [2] (b) Calculate average cost if two firms each carry half the passengers. [2] (c) Explain why this market might be a natural monopoly. [2]

6. Country E’s glass market demands 600,000 tonnes a year. In market A the minimum efficient scale (MES) is 150,000 tonnes. In market B it is 400,000 tonnes.

(a) Calculate how many firms could operate at MES in each market. [2] (b) State which market is more likely to be supplied by one firm and explain why. [2]

7. A new firm buys machinery for 800,000 cu, which could be resold for 320,000 cu. It also spends 150,000 cu on staff training. If it closes early it must pay a contract termination fee of 60,000 cu.

(a) Calculate the sunk cost of the outlay. [2] (b) Calculate the sunk cost as a percentage of the total outlay, to one decimal place. [1] (c) Explain how sunk costs and the termination fee act as barriers to exit, and how this may affect entry. [3]

8. Market W has firm shares of 48%, 20%, 12% and 9%, with 11% held by many small firms. Market Z has firm shares of 25%, 23%, 21% and 20%, with 11% held by many small firms.

(a) Calculate CR4 for each market. [2] (b) State CR1 for each market. [1] (c) Explain why the markets differ although their CR4 values are equal. [3]

9. Explain why a firm in monopolistic competition has some control over its price but not much. [4]

10. Evaluate whether a high concentration ratio shows that a market is uncompetitive. [8]

11. The table shows the market shares (%) in Country A’s paper market in year 1 and year 5.

Firm	A	B	C	D	All others
Year 1	34	26	14	9	17
Year 5	38	27	12	8	15

(a) Calculate the two-firm concentration ratio in each year. [2] (b) Calculate the change in the three-firm concentration ratio, in percentage points. [2] (c) Calculate the percentage increase in firm A’s market share between year 1 and year 5, to one decimal place. [2] (d) Evaluate whether the data show that barriers to entry have risen. [4]

Answers

1. Any two of: many buyers and sellers; a homogeneous (identical) product; free entry and exit; perfect information; firms are price takers. One feature [1], a second different feature [1]. [2] Examiner insight: Two distinct features earn two separate credits, so avoid giving the same feature in two wordings, such as “many firms” and “lots of sellers”.

2. Monopolistic competition has many small firms [1], while oligopoly has a few large firms [1]. Entry into monopolistic competition is fairly free [1], while oligopoly has significant barriers to entry [1]. [4] Examiner insight: A distinction needs both sides of the comparison. Describing only oligopoly leaves half the credit unearned.

3. (a) Legal [1]. (b) Market [1]. (c) Physical [1]. (d) Cost [1]. [4] Examiner insight: Naming the type is enough here. In longer answers, add the mechanism, because the label alone explains little.

4. (a) CR3 = (60 + 45 + 30) / 300 x 100 [1] = 45% [1]. (b) CR4 = (60 + 45 + 30 + 30) / 300 x 100 = 165 / 300 = 55% [1]. (c) After the merger the firms are QR 75, P 60, S 30 and T 15. The three largest are 75, 60 and 30 [1], so CR3 = 165 / 300 x 100 = 55% [1]. [5] Examiner insight: Show which firms form the top three after the merger. The merged firm is the largest, so it is easy to add the wrong firms.

5. (a) Average cost = 1,200,000 / 300,000 + 3 [1] = 4 + 3 = 7 cu [1]. (b) Each firm carries 150,000, so average cost = 1,200,000 / 150,000 + 3 [1] = 8 + 3 = 11 cu [1]. (c) A second firm duplicates the fixed cost of 1,200,000 cu [1], so average cost rises from 7 cu to 11 cu. Average cost is still falling at the output of the whole market, so one firm supplies at lower cost [1]. [6] Examiner insight: Support the explanation with the figures you calculated. A bare statement that fixed costs are high is weaker than a comparison of 7 cu with 11 cu.

6. (a) Market A: 600,000 / 150,000 = 4 firms [1]. Market B: 600,000 / 400,000 = 1.5, so only one firm can reach MES [1]. (b) Market B is more likely to have one supplier [1]. A second firm would produce about 200,000 tonnes, below MES, so its average cost would be higher [1]. [4] Examiner insight: A result of 1.5 firms needs interpreting. Say that it means one firm at MES, not 1.5 firms.

7. (a) Machinery loss = 800,000 − 320,000 = 480,000 [1]. Add training 150,000: sunk cost = 630,000 cu [1]. (b) 630,000 / 950,000 x 100 = 66.3% [1]. (c) Sunk costs cannot be recovered on leaving, so leaving means a loss and the firm may stay in the market [1]. The termination fee adds 60,000 cu, taking the cost of early exit to 690,000 cu [1]. Entrants expect to face these costs if they fail, so the risk deters entry too [1]. [6] Examiner insight: Link exit barriers back to entry. Many answers define the barrier but stop before saying what it does to new firms.

8. (a) Market W: 48 + 20 + 12 + 9 = 89% [1]. Market Z: 25 + 23 + 21 + 20 = 89% [1]. (b) CR1 is 48% in W and 25% in Z [1]. (c) In W one firm holds 48% and the other leaders are much smaller, so that firm is close to a dominant position [1]. In Z four firms are almost equal and must watch each other closely [1]. CR4 does not show how shares are divided, so look at CR1 or individual shares as well [1]. [6] Examiner insight: Use the figures from both markets in the explanation. Answers that only say “CR does not show distribution” miss the application.

9. Products are differentiated by brand, quality or location [1], so some customers prefer this firm and it can raise its price without losing every sale [1]. There are many rivals selling close substitutes [1], and entry is fairly free, so a high price makes customers switch and attracts new firms [1]. [4] Examiner insight: Both parts of the question need an answer: why there is some control, and why it is limited. A one-sided answer leaves half the question unanswered.

10. Definition and argument, up to 8 points:

• A concentration ratio is the combined market share of the n largest firms [1].
• A high figure means a few firms hold most sales, so they may have market power and set prices above competitive levels [1].
• Barriers to entry may protect them from new rivals [1].
• Fewer rivals mean less pressure to cut prices or improve quality [1].
• However, CR hides how the share is divided, since four equal rivals compete differently from one dominant firm [1].
• It depends on how the market is defined, and ignores imports and foreign rivals [1].
• If barriers are low, new firms can enter, so the high figure may overstate market power [1].
• Judgement: a high CR is a warning sign and not proof. It should be supported by evidence on barriers, prices and entry [1]. [8] Examiner insight: Evaluation gains credit when it ends in a supported judgement. A list of limitations with no conclusion usually earns less than a shorter answer that weighs them.

11. (a) Year 1: 34 + 26 = 60% [1]. Year 5: 38 + 27 = 65% [1]. (b) Year 1 CR3 = 34 + 26 + 14 = 74% [1]. Year 5 CR3 = 38 + 27 + 12 = 77%, so the change is +3 percentage points [1]. (c) Rise = 38 − 34 = 4 points, and 4 / 34 x 100 [1] = 11.8% [1]. (d) Rising CR is consistent with higher barriers, as leaders keep their position and others lose share [1]. But it could result from leaders offering better products or lower prices, with no barriers involved [1]. The rise is small and covers only two points in time, so a trend is not established [1]. Evidence on new entrants, firm numbers, profits and costs is needed before concluding anything [1]. [10] Examiner insight: Keep percentage points and percentage change apart. Answers that mix them tend to go wrong on both parts.

Where marks are usually lost

• Defining a structure but not applying the features of number, product, entry and information.
• Naming a barrier with no mechanism, or no link to the number of firms.
• Giving a concentration ratio with no n, or adding the wrong firms.
• Dividing by the total of the leading firms rather than the whole market.
• Mixing percentage points with percentage change.
• Treating a high CR as proof of high prices, with no evaluation.
• Treating a natural monopoly as a firm with high costs, when it has the lowest average cost at market scale.
• Stating a result such as 1.5 firms without interpreting it.
• Giving a list of evaluation points with no judgement.

Next steps

• Re-read the revision notes and the study guide.
• Go to the Cambridge A Level Economics hub and the course checklist.
• Take one of the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

This page follows the Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028, published by Cambridge University Press & Assessment, outcomes 7.6.1 to 7.6.3 and 7.6.5.