OCR A Level Economics: Oligopoly, interdependence and concentration ratios (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 follow the oligopoly statements in OCR A Level Economics (H460), specification Version 3.0 (June 2026), under Market structures in Component 01, Microeconomics. Every firm and number is made up. Learn the content in the study guide and the revision notes. The course hub and checklist show the wider picture.

Questions

1. A market’s five largest employers have 640, 410, 350, 220 and 180 workers. Smaller firms employ 200 in total.

(a) Calculate the three-firm concentration ratio by employment. [2] (b) State one limitation of using a concentration ratio. [1]

2. A firm’s demand has a kink at £5 and 600 units a week. Above it, P = 8 − 0.005Q. Below it, P = 11 − 0.01Q. Its marginal cost is MC = 0.4 + 0.0015Q.

(a) Calculate marginal revenue just above and just below 600 units, and the price elasticity of demand on each side. [3] (b) Costs then rise by £0.50 per unit. Explain what happens to price. [2]

3. Explain why interdependence leads oligopolists to rely on non-price competition. [4]

4. Two firms choose Advertise or Not. Annual profit in £m (firm X first, firm Y second): both advertise 6, 6; X advertises and Y does not 14, 3; X does not and Y advertises 3, 14; neither advertises 10, 10.

(a) Identify the dominant strategy and the Nash equilibrium. [3] (b) Explain why the firms may not reach the outcome with neither advertising. [3]

5. Three firms supply a market with demand P = 68 − Q (Q in thousands, P in £). Each has constant marginal cost of £14 and no fixed cost.

(a) If they form a cartel acting as one monopolist and share output equally, find price, total output and each firm’s profit (in £ thousand). [4] (b) One firm now produces 12 while the others keep to 9 each. Find the new price and each firm’s profit. [2]

6. A firm sells 90,000 units at £12 with variable cost £7 a unit.

(a) Explain what is meant by non-price competition. [2] (b) An advertising campaign costs £150,000. Calculate the extra units needed to cover the campaign. [3]

7. Explain two effects of product differentiation on an oligopolist. [4]

8. Demand is P = 76 − Q and marginal cost is £16 (no fixed cost). Calculate price and output under perfect competition and under monopoly, and the deadweight loss of monopoly. [6]

9. In long-run monopolistic competition a firm has TC = 64 + 8q + 0.25q² and demand AR = 24 − 0.75q.

(a) Show that the firm earns normal profit at q = 8. [3] (b) The lowest average cost is at q = 16. Explain what this shows about efficiency. [3]

10. Evaluate the advantages and disadvantages of oligopoly. [10]

11. Evaluate, using examples, the extent to which the theory of the firm explains the behaviour and performance of firms. [12]

Answers

1. (a) Total workers = 640 + 410 + 350 + 220 + 180 + 200 = 2,000 [1]. CR3 = (640 + 410 + 350) ÷ 2,000 = 70% [1] (b) Any one: depends on how the market is defined; ignores foreign competition; hides the split among leaders; says nothing about contestability [1] [3] Examiner insight: Answers that give the ratio with its n and the unit (a percentage) read as complete, and a limitation should be specific to concentration ratios rather than a generic comment about statistics.

2. (a) Upper MR = 8 − 0.01 × 600 = £2; lower MR = 11 − 0.02 × 600 = −£1 [1]. Elasticity above = 5 ÷ (0.005 × 600) = 1.67 [1]; below = 5 ÷ (0.01 × 600) = 0.83 [1] (b) MC at 600 rises from 1.3 to 1.8 [1]. Both lie in the gap between −1 and 2, so MC still cuts the broken MR at 600 and price stays at £5 [1] [5] Examiner insight: Showing the two MC values against the gap earns more credit than the statement “price is rigid”, because the explanation is the comparison.

3. Each firm’s outcome depends on rivals’ reactions [1]. A price cut is likely to be matched, so revenue falls for all [1]. A price rise may not be followed, so the firm loses customers [1]. Branding, quality or service is harder to copy, so it can win loyalty without a price war [1] [4] Examiner insight: A chain from interdependence to the reaction of rivals to the choice of tool is stronger than a list of non-price methods.

4. (a) If Y advertises, X gets 6 against 3 by not advertising; if Y does not, X gets 14 against 10 [1]. So advertising is dominant for X, and by symmetry for Y [1]. The Nash equilibrium is both advertising, 6, 6 [1] (b) Neither advertising gives 10, 10, better for both than 6, 6 [1]. But each can gain by advertising (14 against 10) [1], and each fears the other will do so, so both end up advertising (a prisoner’s dilemma) [1] [6] Examiner insight: Quote figures from the matrix in the explanation. A statement that the firms “compete” without the 14 against 10 comparison does not show the reasoning.

5. (a) MR = 68 − 2Q = 14, so Q = 27 [1]. P = 68 − 27 = £41 [1]. Profit = (41 − 14) × 27 = 729 [1]. Each earns 729 ÷ 3 = 243 [1] (b) Output = 12 + 9 + 9 = 30, so P = £38 [1]. The cheat earns (38 − 14) × 12 = 288; each other firm (38 − 14) × 9 = 216 [1] [6] Examiner insight: Finishing with a comparison (288 against 243, but 216 for the others) shows why cartels are unstable and is what the numbers are for.

6. (a) Competition on factors other than price [1], such as branding, quality or service [1] (b) Contribution per unit = 12 − 7 = £5 [1]. Extra units = 150,000 ÷ 5 [1] = 30,000 [1] [5] Examiner insight: Dividing the fixed campaign cost by the unit contribution, not by the price, is the step that distinguishes a correct break-even.

7. Demand becomes less price elastic [1], because buyers see fewer close substitutes, which gives some pricing power [1]. It builds brand loyalty, which acts as a barrier to entry [1], so supernormal profit is easier to keep [1] [4] Examiner insight: Each effect needs its reason. “It makes demand inelastic” alone describes the result, not why.

8. Perfect competition: P = MC, so 76 − Q = 16 [1], Q = 60, P = £16 [1]. Monopoly: MR = 76 − 2Q = 16, so Q = 30 [1] and P = 76 − 30 = £46 [1]. Deadweight loss = ½ × (46 − 16) × (60 − 30) [1] = 450 [1] [6] Examiner insight: The triangle base is the lost output (60 − 30) and its height is the price gap over MC. Mixing the two up is a common slip.

9. (a) AC = 64 ÷ 8 + 8 + 0.25 × 8 = 8 + 8 + 2 = £18 [1]. AR = 24 − 0.75 × 8 = £18 [1]. Price equals average cost, so profit is normal [1] (b) Lowest AC = 64 ÷ 16 + 8 + 4 = £16 [1]. The firm produces 8, below 16, so it is not productively efficient and has excess capacity [1]. Also P (18) > MC (8 + 0.5 × 8 = 12), so it is not allocatively efficient [1] [6] Examiner insight: Linking the position of long-run equilibrium to the lowest point of average cost, with figures, earns more than naming the type of efficiency.

10. Advantages: economies of scale can lower costs [1]; supernormal profit may fund research and innovation [1]; non-price competition may raise quality and choice [1]; price stability helps planning [1]. Disadvantages: price above MC, so allocative inefficiency (diagram: price at the kink above the MC curve) [1]; collusion can raise price and cut output [1]; barriers to entry protect profit and advertising adds cost [1]. Evaluation: the balance depends on the strength of rivalry and the threat of entry [1], on whether profits are really reinvested [1], and the time period; a justified overall judgement [1] [10] Examiner insight: Advice that tends to lift an evaluation answer: weigh the two lists against each other with a stated condition and finish with a judgement, rather than listing both sides.

11. Supports: the theory gives benchmarks such as P = MC [1]; predicts that high profit attracts entry [1]; kinked demand and game theory explain price rigidity and price wars [1]; a small bakery in a town fits monopolistic competition [1]. Challenges: firms often aim for growth, sales revenue or satisficing rather than maximum profit [1]; the principal-agent problem means managers may follow other aims [1]; firms rarely know MC and MR exactly [1]; real markets sit between the four types [1]; a threat of entry can discipline a seemingly dominant firm [1]. Evaluation: the theory is a benchmark rather than a description [1]; it works best where firms are profit-driven and the market stable, and less well with complex objectives [1]; a clear conclusion supported by an example [1] [12] Examiner insight: An answer that names a specific type of firm and one assumption it breaks is more convincing than general doubt about “realism”.

Where marks are usually lost

• Giving a concentration ratio without n or without the unit.
• Mixing up which side of the kink is elastic.
• Calling an outcome a Nash equilibrium without checking each player’s best reply.
• Forgetting to divide the cartel profit between members.
• Dividing campaign cost by price rather than contribution per unit.
• Using the wrong base for a deadweight loss triangle.
• Drawing a diagram with unlabelled axes, curves or equilibrium.
• Listing advantages and disadvantages without weighing them.

Next steps

• Review with the revision notes and the study guide.
• Tick off coverage on the checklist and see the course hub.
• Try all free 10-minute diagnostics.
• Book a free trial class: /trial/.

Official syllabus

Source: OCR A Level in Economics (H460), specification Version 3.0 (June 2026), for first assessment in 2021, published by OCR.