OCR GCSE Economics: Competition, monopoly, production, costs and scale (J205) – Revision Notes

These are condensed notes for sections 2.5 (Competition) and 2.6 (Production) of the OCR GCSE (9-1) Economics specification (J205), Version 2.0, for first assessment in 2019. The specification is not tiered. The fuller explanations and longer examples are in the study guide, then test yourself with the practice questions. Other notes for this course: markets and money revision notes. Tick off topics on the checklist, see the course hub and find gaps with the free diagnostics. All firms and figures below are invented and illustrative.

Key definitions

Term	Meaning
Competition	Rivalry between producers selling to the same customers
Market share	The part of all the market’s sales that one firm wins, as a percentage
Barrier to entry	Anything that makes it hard for new firms to enter (high start-up cost, patents, strong brands)
Monopoly	One producer, or one so dominant it faces little rivalry
Oligopoly	A handful of big, interdependent firms that make most of the sales
Production	The total amount of goods and services produced
Productivity	How much each worker, hour or machine contributes, e.g. output per worker
Economies of scale	Fall in average cost as a firm increases its scale of production

2.5 Competition in four lines

• Why firms compete: profit, market share, survival, growth.
• How: price cuts, and non-price methods such as quality, design, service and advertising.
• Effect on price: rivals cutting price and new entrants raising supply both push price down.
• Judgement: consumers usually gain; producers face lower margins, more pressure to cut costs and possible exit.

Method: analyse how entry changes price

1. State the event: new firms enter.
2. Say supply increases, so the supply curve shifts right.
3. Show a surplus at the old price.
4. Say price falls until the market clears.
5. State the new equilibrium: lower price, higher quantity.
6. Add the effect on consumers and on existing producers.

Market structures at a glance

	Competitive	Oligopoly	Monopoly
Firms	Many	Few, large	One
Entry	Easy	Hard	Very hard
Price	Market price	Watches rivals	Most control
Choice	Wide	Limited	Little

Interdependence means one firm’s decision affects its rivals, so oligopolists often avoid price wars. A firm with 30% of a market worth £1,200m has sales of £360m, because 360 ÷ 1,200 × 100 = 30%.

2.6 Production

• Individuals (self-employed, workers), firms (main producers, aim for profit) and the government (provides some services, sets rules, taxes and subsidies) all produce.
• Production can rise through extra inputs. Productivity rises only if output per input rises.

Worked reminder. A workshop makes 90 items in a 6-hour shift, 90 ÷ 6 = 15 an hour. After training it makes 108 in the same time, 108 ÷ 6 = 18 an hour. Productivity rises by (18 − 15) ÷ 15 × 100 = 20%.

Why production and productivity matter

• For the economy: more output, jobs, incomes, tax revenue and exports; higher living standards.
• For firms: lower cost per unit and the ability to compete on price.
• Limits: extra output may only reflect extra workers; automation can cost jobs; growth can damage the environment.

Costs, revenue, profit and loss

Measure	Formula
Total cost	variable cost + fixed cost
Average cost	total cost ÷ output
Total revenue	price × quantity sold
Average revenue	total revenue ÷ quantity (equals price)
Profit	total revenue − total cost
Loss	total cost − total revenue

Method in steps

1. Find variable cost: cost per unit × output.
2. Add fixed cost to get total cost.
3. Divide total cost by output for average cost.
4. Multiply price by output for total revenue.
5. Subtract total cost from total revenue.
6. Positive result is profit; negative result is a loss. Always include units.

Worked reminder. A shoe-repair stall (invented) has fixed cost £1,500 a week, variable cost £4 per repair and a price of £11.

Repairs	TC (£)	AC (£)	TR (£)	Profit (£)
150	2,100	14.00	1,650	−450
250	2,500	10.00	2,750	250
400	3,100	7.75	4,400	1,300

At 150 repairs the TC is 1,500 + 4 × 150 = £2,100, so TR of £1,650 gives a loss of £450. Average cost falls as output rises because the fixed cost is shared across more repairs.

Profit and supply

• Higher price, same costs: profit rises, firms supply more (movement along the curve).
• Higher costs: profit falls, supply shifts left.
• Lower costs (technology, subsidy): supply shifts right.
• Profit attracts new firms; losses push firms to cut costs or leave.
• A price cut raises total revenue only if the rise in sales is proportionally large enough. Selling at £12 and then £10 changes TR from 12 × 200 = £2,400 to 10 × 260 = £2,600 if sales rise from 200 to 260: price falls 16.7% but quantity rises 30%.

Economies of scale

Type	Idea
Technical	Large machines, specialist workers
Purchasing	Bulk-buying discounts
Financial	Cheaper borrowing
Managerial	Specialist managers
Marketing	Advertising cost shared by more units sold
Risk-bearing	A wide range of products spreads the risk

Worked reminder. A cafe chain (invented) pays £12 a kilogram for coffee beans in small orders and £10.50 a kilogram in bulk orders. The fall is (10.50 − 12) ÷ 12 × 100 = −12.5%, a purchasing economy. Link it to competition: lower average cost lets a firm cut price or raise its margin, and the largest firms may deter entry.

Evaluation chains to learn

Competition: producers and consumers.

• Consumers: rivalry and entry lower price, widen choice and push quality up. The gain is largest when switching between firms is easy.
• Producers: margins shrink and weaker firms exit, but efficient firms cut costs, innovate and may gain share.
• Risk: if many rivals fail, the survivors may later raise prices, so the benefit to consumers can fade.
• Judgement: usually good for consumers, mixed for producers. Say what your verdict depends on.

Monopoly and oligopoly versus competitive markets.

• Few or one seller means more control over price and less choice.
• Barriers to entry protect profit, so rivals cannot easily arrive and force price down.
• A large firm may have lower average cost from economies of scale, so a high price is not certain.
• In an oligopoly, interdependence means a price cut can be matched, leaving everyone with lower profit. Firms often compete on quality, branding and advertising instead.

Productivity and the economy.

• Gain: lower unit cost, stronger exports, higher output, incomes and tax revenue.
• Cost: automation can displace workers, and extra output can damage the environment.
• Judgement: important for long-run living standards if gains are shared and damage is controlled.

Profit, loss and supply.

• Profit signals that a market is worth entering and pays for reinvestment.
• A loss tells a firm to cut cost, raise revenue or leave. It may carry on for a time while it hopes conditions improve.
• Always connect the cost or price change to the supply curve before judging the effect.

Must-know distinctions

• Production versus productivity.
• Average cost versus total cost; average revenue versus total revenue.
• Movement along the supply curve (price change) versus shift (cost change).
• Oligopoly (few firms) versus monopoly (one firm).
• Explain (state and apply), analyse (chain of reasoning), evaluate (both sides plus a supported judgement).

Quick self-test

1. Give two non-price ways a firm can compete.
2. A firm sells £360m in a £1,200m market. State its market share.
3. A price falls from £50 to £45. State the percentage change.
4. Output per hour rises from 15 to 18. State the percentage rise in productivity.
5. A shoe-repair stall has fixed cost £1,500 and variable cost £4 a repair. Find TC and AC for 250 repairs.
6. At 250 repairs and £11 a repair, find TR and profit.
7. Coffee beans fall from £12 to £10.50 a kilogram. State the percentage change.
8. State one difference between oligopoly and monopoly.
9. Raw material costs rise. Describe the effect on the supply curve.
10. Give one reason why economies of scale may benefit consumers.

Answers

1. Quality, design, customer service, advertising, delivery speed (any two).
2. 360 ÷ 1,200 × 100 = 30%.
3. (45 − 50) ÷ 50 × 100 = −10%.
4. (18 − 15) ÷ 15 × 100 = 20%.
5. TC = 1,500 + 4 × 250 = £2,500; AC = 2,500 ÷ 250 = £10.
6. TR = 11 × 250 = £2,750; profit = 2,750 − 2,500 = £250.
7. −12.5%.
8. Oligopoly has a few interdependent firms; monopoly has one firm (or one dominant firm) with the most price control.
9. Profit at each price falls, so supply shifts left.
10. Lower average cost can be passed on as lower prices.

Where marks are usually lost

• Writing a number with no units or no sign for a loss.
• Using average cost where total cost is needed.
• Confusing a rise in production with a rise in productivity.
• Describing competition without linking it to price through supply.
• Listing effects on consumers only, when the question asks about producers and consumers.
• Ending an evaluation without a supported judgement.
• Saying “profit” when the context shows a loss.
• Moving along a curve when costs have changed.

Official syllabus

OCR GCSE (9-1) Economics (J205), specification Version 2.0 (June 2026), for first assessment in 2019, published by OCR. Sections 2.5 and 2.6.