OCR A Level Economics: Monopoly, natural monopoly and price discrimination (H460) – 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 the monopoly statements in the market structures topic of Component 01 (Microeconomics) in OCR A Level Economics, H460, Version 3.0 (June 2026), for first assessment in 2021. All firms and numbers are invented. Money is in currency units (cu). Start with the study guide or the revision notes. See also the OCR economics hub, the printable checklist and the free 10-minute diagnostics.

Questions

1. State two characteristics of a monopoly. [2]

2. A firm faces the demand curve P = 70 − 2Q. Calculate its total revenue at 8 units and at 9 units, and the marginal revenue of the 9th unit. [3]

3. A sole supplier of a patented irrigation valve in Country C has demand P = 104 − 4Q and total cost TC = 180 + 14Q + Q².

(a) Calculate the profit-maximising output and price. [4] (b) Calculate the maximum profit. [2]

4. Explain, with the aid of a diagram, why a monopolist is a price maker and can earn supernormal profit in the long run. [4]

5. Define the term monopsony and give an example. [3]

6. A sole district heating network in Country D has TC = 750 + 4Q (so MC = 4) and demand P = 44 − 0.5Q.

(a) Calculate the profit-maximising output, price and profit. [4] (b) Calculate the output and price where P = ATC. [3] (c) Explain why this is a natural monopoly. [2]

7. Use the firm in question 3.

(a) Calculate the output and price at which P = MC. [2] (b) Calculate the deadweight loss of the monopoly. [2] (c) Explain why the monopolist is not productively efficient. [2]

8. A coach operator has constant MC = 8. Peak demand is P = 44 − 2Q and off-peak demand is P = 30 − 2Q.

(a) Find the output and price that maximise profit in each of the two markets. [4] (b) Calculate total profit. [1] (c) Show how much extra profit discrimination earns compared with one price for both markets. [3]

9. Explain the conditions needed for a firm to price discriminate. [4]

10. Evaluate the impact of the existence of a natural monopoly. [8]

11. “Monopoly power always harms consumers.” Evaluate this claim. [9]

Answers

1. Any two from: a single or dominant seller [1]; high barriers to entry [1]; no close substitutes or being a price maker. [2] Examiner insight: Two distinct characteristics earn credit; repeating one idea in different words does not.

2. TR at 8 = (70 − 16) × 8 = 54 × 8 = 432 [1]. TR at 9 = (70 − 18) × 9 = 52 × 9 = 468 [1]. MR of the 9th unit = 468 − 432 = 36 [1]. [3] Examiner insight: Marginal revenue is the change in total revenue; showing both totals makes your method visible even if one slips.

3. (a) MR = 104 − 8Q [1]. MC = 14 + 2Q [1]. MC = MR: 104 − 8Q = 14 + 2Q, so 10Q = 90 and Q = 9 [1]. P = 104 − 36 = 68 [1]. (b) TR = 68 × 9 = 612; TC = 180 + 126 + 81 = 387 [1]. Profit = 612 − 387 = 225 [1]. [6] Examiner insight: The price comes from the demand curve above the chosen output; quoting the MC value of 32 as the price is a common slip.

4. The firm is the only seller, so it faces the downward-sloping market demand curve [1]. It sets output where MC = MR and reads the price from demand above that output [1]. Supernormal profit is the rectangle between price and ATC at that output [1]. High barriers to entry stop new firms competing the profit away, so it can last in the long run [1]. [4] Examiner insight: A diagram with MR below AR, the MC = MR output marked and the profit rectangle shaded supports your words; “barriers” is the link that explains long-run profit.

5. A monopsony exists where there is only one buyer, or one dominant buyer [1]. It has the power to push the price it pays below the competitive level [1]. Example: a sole buyer of milk from many small farms [1]. [3] Examiner insight: State that the power lies on the buying side; many answers describe a monopoly instead.

6. (a) MR = 44 − Q [1]. MR = MC: 44 − Q = 4, so Q = 40 [1]. P = 44 − 20 = 24 [1]. Profit = 24 × 40 − (750 + 160) = 960 − 910 = 50 [1]. (b) 44 − 0.5Q = 750/Q + 4 [1]. Multiply by 2Q: Q² − 80Q + 1,500 = 0, so Q = 50 or 30 [1]. Take Q = 50, where ATC is still falling and the price is 44 − 25 = 19 [1]. (c) ATC = 750/Q + 4 falls at every output [1]. One firm making 50 units has ATC 19, but two firms making 25 each would have ATC = 30 + 4 = 34 each [1]. [9] Examiner insight: When a quadratic has two roots, say which you reject and why; a natural monopoly answer should use the falling ATC rather than just “high fixed costs”.

7. (a) P = MC: 104 − 4Q = 14 + 2Q, so Q = 15 [1] and P = 104 − 60 = 44 [1]. (b) At Q = 9, MC = 32 and P = 68. DWL = 0.5 × (15 − 9) × (68 − 32) [1] = 108 [1]. (c) Minimum ATC occurs where Q = √180 = 13.4, with ATC about 40.8 [1]. The monopolist produces 9 units at ATC 43, above that minimum, so it is not productively efficient [1]. [6] Examiner insight: The deadweight loss triangle sits between demand and MC, between the monopoly and efficient outputs; shading the profit rectangle instead loses the point.

8. (a) Peak: MR = 44 − 4Q = 8, so Q = 9, P = 44 − 18 = 26 [2]. Off-peak: 30 − 4Q = 8, so Q = 5.5, P = 30 − 11 = 19 [2]. (b) Peak profit = (26 − 8) × 9 = 162. Off-peak profit = (19 − 8) × 5.5 = 60.5. Total = 222.5 [1]. (c) Combined demand is Q = (44 − P)/2 + (30 − P)/2 = 37 − P, so P = 37 − Q and MR = 37 − 2Q [1]. MR = 8 gives Q = 14.5 and P = 22.5, so profit = 14.5 × 14.5 = 210.25 [1]. Extra profit = 222.5 − 210.25 = 12.25 [1]. [8] Examiner insight: Treat each market separately, because the price follows each market’s own demand; the more inelastic peak market gets the higher price.

9. The firm needs market power, so it can set price [1]. It must keep the groups apart, for example by age, place or time [1]. Resale between the groups must be prevented, or low-price buyers would sell on to the high-price group [1]. The markets need different price elasticities of demand, so that different prices raise revenue [1]. [4] Examiner insight: Each condition needs a short reason, not just a name; “no resale” is often left without saying why it matters.

10. A natural monopoly has ATC falling over the whole market, so one firm gives the lowest cost per unit [1]. Duplication would raise cost: two firms of 25 units would each have ATC 34, against 19 for one firm of 50 [1]. Unregulated, the firm sets MR = MC, so output is 40 and price 24, rather than 50 and 19 at average-cost pricing [1]. That means higher prices and lower output for consumers [1]. A price cap near ATC raises output and keeps the firm viable [1], but the regulator may not know the true cost [1]. Pricing at MC (output 80, price 4) would need a subsidy to cover a loss of 750 [1]. Judgement: the impact is favourable if scale economies are large and regulation is effective, and unfavourable if the firm is unregulated, so it depends on the strength of regulation [1]. [8] Examiner insight: Evaluation gains credit when it weighs the benefit of one firm against the risk of exploitation and ends with a reasoned view, not just a list of points.

11. Harm: the monopolist sets MC = MR, so with the firm in question 3 output is 9 and price 68, against 15 and 44 at P = MC [1]. This is allocative inefficiency with a deadweight loss of 108 [1]. Consumers lose surplus and choice [1]. Lack of rivals may cause X-inefficiency [1]. Against: if the firm has large economies of scale, its costs may be low enough that price is below what competitive firms would charge [1]. Supernormal profit can fund research and development, leading to new products [1]. A patent-protected firm may only invest because of that protection [1]. Regulation or the threat of entry can limit the harm [1]. Judgement: “always” is too strong, because the result depends on cost advantage, reinvestment and regulation [1]. [9] Examiner insight: Challenge the word “always” directly; a closing judgement that says what the outcome turns on usually reads better than another list of points.

Where marks are usually lost

• Quoting an MC or MR value as the monopoly price when it should come from AR.
• Setting MR equal to price, or giving MR the same slope as demand.
• Shading supernormal profit between price and MC.
• Giving a deadweight loss without naming the two outputs it lies between.
• Saying “natural monopoly” without referring to falling average cost.
• Naming price discrimination conditions with no reason.
• Evaluating with a list of pros and cons and no final judgement.
• Dropping the “may be” in efficiency answers when scale economies are large.

Next steps

• Recap with the revision notes.
• Re-read the study guide.
• Tick off topics on the printable checklist and visit the OCR economics hub.
• Try the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

OCR A Level in Economics (H460), Version 3.0 (June 2026), for first assessment in 2021, published by OCR (Oxford Cambridge and RSA Examinations).