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Assessment map
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Unit 2.11: Theory of the firm (HL only)
This page provides a map of the various assessments included in the unit, including short answers responses, essays and areas for discussion. I have included a section A and section B blank essay template which will help your classes prepare their paper one essay responses.
| Syllabus area: Production returns | Assessment |
| Production in the short run: the law of diminishing returns. | Activities 1 - 5, on page Production (HL only) |
| Distinguish between the short run and long run in the context of production. | Activity 1, video and short answer activity on page Production (HL only) |
| Calculate total, average and marginal product from a set of data and/or diagrams. | Activities 1 - 4, on page Production (HL only) |
| Syllabus area: Economies / diseconomies of scale | Assessment |
| Explain the meaning of economic costs as the opportunity cost of all resources employed by the firm (including entrepreneurship). | Short answer activities 1, 2 on page Economic costs / profit (HL only) |
| Distinguish between explicit costs and implicit costs as the two components of economic costs | Short answer activities 1,2 and 3 on page Economic costs / profit (HL only) |
| Syllabus area: Production costs | Assessment |
| Explain the distinction between the short run and the long run, with reference to fixed factors and variable factors | Activity 2, panda activity on page Costs of production (HL only) |
| Distinguish between total costs, marginal costs and average costs. Draw diagrams illustrating the relationship between marginal costs and average costs and explain the connection with production in the short run. | Activity 1, 3 and 4 on page Costs of production (HL only) Paper three activity at: Paper 3 question on cost (HL only) |
| Explain the relationship between the product curves (average product and marginal product) and the cost curves (average variable cost and marginal cost), with reference to the law of diminishing returns. | Activity 5 on page Costs of production (HL only) |
| Calculate total fixed costs, total variable costs, total costs, average fixed costs, average variable costs, average total costs and marginal costs from a set of data and / or diagrams. | Activity 1, 3 and 4 on page Costs of production (HL only) |
| Syllabus area: Long run production | Assessment |
| Production in the long run: returns to scale. Distinguish between increasing returns to scale, decreasing returns to scale and constant returns to scale. | Short answer and reflection activities available at Economies and diseconomies of scale (HL only) |
| Syllabus area: Short run / long run costs | Assessment |
| Explain the relationship between short-run average costs and long-run average costs. Using a diagram, illustrate the reason for the shape of the long-run average total cost curve. | Activities on page: Long run average cost curves (HL only) Paper one type essay on the same page. |
| Explain factors giving rise to economies of scale, including specialization, efficiency, marketing and indivisibilities. | Short answer and reflection activities available at: Economies and diseconomies of scale (HL only) |
| Explain factors giving rise to diseconomies of scale, including problems of coordination and communication. | Short answer and reflection activities available at Economies and diseconomies of scale (HL only) |
| Syllabus area: Revenue theory | Assessment |
| Distinguish between total revenue, average revenue and marginal revenue. | Activities 2, 4 on Revenue theory (HL only) |
| Draw diagrams illustrating the relationship between total revenue, average revenue and marginal revenue. | Activity 3 on page: Revenue theory (HL only) |
| Calculate total revenue, average revenue and marginal revenue from a set of data and/or diagrams. | Activities 2,4 on page: Revenue theory (HL only) |
| Syllabus area: Economic profit | Assessment |
| Describe different types of profit within businesses. Recognise that economic profit (abnormal profit) is the case where total revenue exceeds economic cost. | Short answer activities on page Economic profit (HL only) |
| Explain the concept of normal profit (zero economic profit) as the amount of revenue needed to cover the costs of employing self-owned resources (implicit costs, including entrepreneurship) or the amount of revenue needed to just keep the firm in business. | Revision activity: Unit 2.12: Costs, revenue and profit review sheet |
| Explain why a firm will continue to operate even when it earns zero economic profit (abnormal profit). | Paper one exam question, activity 5 on page Economic profit (HL only) |
| Explain the meaning of loss as negative economic profit arising when total revenue is less than total cost. | Revision activity: Unit 2.12: Costs, revenue and profit review sheet Activities on page: Economic costs / profit (HL only) |
| Calculate different profit levels from a set of data and/or diagrams. | Activity 1 and 2 on page Economic profit (HL only) |
| Syllabus area: Shut down and break even point | Assessment |
| Shut-down price and break-even price. Distinguish between the two concepts and explain, using a diagram, when a loss-making firm would shut down in the short run. | Activities 1 and 2 on page: Breakeven and shut down point (HL only) |
| Explain, using a diagram, when a loss-making firm would shut down and exit the market in the long run. | Short answer activities on page: Breakeven and shut down point (HL only) |
| Calculate the short run shutdown price and the breakeven price from a set of data. | Short answer activities on page: Breakeven and shut down point (HL only) |
| Syllabus area: Goals of business | Assessment |
| Profit maximisation: Explain the goal of profit maximisation where the difference between total revenue and total cost is maximised or where marginal revenue equals marginal cost. | Short answer activities on page: Motives of business (HL only) Paper three questions on costs, on page: Paper 3 question on cost (HL only) |
| Explain alternative goals of firms, including revenue maximisation, growth maximisation, satisficing and corporate social responsibility. | Paper one style examination question on page: Motives of business (HL only) |
| Syllabus area: Perfect competition | Assessment |
| Describe, using examples, the assumed characteristics of perfect competition. | Activity 1 on page: Perfect competition (HL only) |
| Explain, using a diagram, the shape of the perfectly competitive firm’s average revenue and marginal revenue curves, indicating that the assumptions of perfect competition imply that each firm is a price taker. | Activity 5 on page: Perfect competition (HL only) |
| Explain, using a diagram, that the perfectly competitive firm’s average revenue and marginal revenue curves are derived from market equilibrium for the industry. | Activity 6, paper one style question on page: Perfect competition (HL only) |
| Profit maximisation in the short run. | Activity 3 on page: Profit in perfect competition (HL only) |
| Normal profit in the long run: Explain, using a diagram, why, in the long run, a perfectly competitive firm will make normal profit (zero economic profit). Explain, using a diagram, how a perfectly competitive market will move from short run equilibrium to long-run equilibrium. | Activities 1 - 3 and the paper one style question (activity 4) on page: Profit in perfect competition (HL only) |
| Syllabus area: Efficiency | Assessment |
| Explain the meaning of the term allocative efficiency. Explain that the condition for allocative efficiency is P = MC (or, with externalities, MSB = MSC). | Activity 1 and 2 on page: Efficiency in perfect competition (HL only) |
| Explain, using a diagram, why a perfectly competitive market leads to allocative efficiency in both the short run and the long run. | Activity 4 on page: Efficiency in perfect competition (HL only) |
| Explain the meaning of the term productive/technical efficiency. Explain that the condition for productive efficiency is that production takes place at minimum average total cost. | Activities 2 - 4 plus the paper one style question on page: Efficiency in perfect competition (HL only) |
| Explain, using a diagram, why a perfectly competitive firm will be productively efficient in the long run, though not necessarily in the short run. | Activities 4 plus the paper one style question on page: Efficiency in perfect competition (HL only) |
| Syllabus area: Monopoly | Assessment |
| Describe, using examples, the assumed characteristics of a monopoly: a single or dominant firm in the market; no close substitutes; significant barriers to entry. | Activity 1 on page: Monopoly (HL only) |
| Explain the relationship between demand, average revenue and marginal revenue in a monopoly. Why a monopolist will never choose to operate on the inelastic portion of its average revenue curve. | Activity 3 on page: Monopoly (HL only) |
| Explain, using a diagram, the short- and long-run equilibrium output and pricing decision of a profit maximising (loss minimising) monopolist, identifying the firm’s economic profit (abnormal profit), or losses. | Activity 3,4 on page: Monopoly (HL only) |
| Examine the role of barriers to entry in permitting the firm to earn economic profit (abnormal profit). | Activity 4, paper one style examination question on page: Profit and revenue maximisation in monopoly (HL only) |
| Explain, using a diagram, the output and pricing decision of a revenue maximising monopoly firm. Compare and contrast, using a diagram, the equilibrium positions of a profit maximising monopoly firm and a revenue maximising monopoly firm. | Activity 1, 2 on page: Profit and revenue maximisation in monopoly (HL only) |
| Calculate from a set of data and/or diagrams the revenue maximising level of output. | Activity 2 on page: Profit and revenue maximisation in monopoly (HL only) |
| Natural monopoly: Explain the meaning of the term “natural monopoly” and illustrate this on a diagram. | Activity 6 on page: Monopoly (HL only) |
| Monopoly and efficiency: To what extent are monopolies efficient? Evaluate reasons why, despite inefficiencies, a monopoly may be considered desirable? | Activity 1 - 3 on page: A comparison of monopoly and perfect competition? (HL only) |
| Policies to regulate monopoly power. | Activity 7, paper one style question on page: Monopoly (HL only) Facebook activity, on page: A comparison of monopoly and perfect competition? (HL only) |
| Use diagrams to explain the advantages and disadvantages of monopoly compared with perfect competition. | Activity 1 - 3 on page: A comparison of monopoly and perfect competition? (HL only) Activity 6, paper one style examination question on page: A comparison of monopoly and perfect competition? (HL only) |
| Syllabus area: Monopolistic competition | Assessment |
| Assumptions of the model and the revenue and cost curves in monopolistic competition. | Activity 1, 2 on page: Monopolistic competition (HL only) |
| Use diagrams to explain why in the long run a firm in monopolistic competition will make normal profit. | Activity 6 on page: Monopolistic competition (HL only) |
| Distinguish, using examples, the difference between price competition and non-price competition. | Activity 4 on page: Monopolistic competition (HL only) |
| Monopolistic competition and efficiency: Explain, using a diagram, why neither allocative efficiency nor productive efficiency are achieved by monopolistically competitive firms. | Activity 7, paper one style examination questions on page: Monopolistic competition (HL only) |
| Compare and contrast monopolistic competition with perfect competition and monopolistic competition with monopoly. | Activity 5 on page: Monopolistic competition (HL only) |
| Syllabus area: Oligopoly | Assessment |
| Describe, using diagrams, the assumed characteristics of an oligopoly. | Activity 3 plus activity 6, paper one style question on page: Oligopoly (HL only) |
| Explain how game theory (the simple prisoner’s dilemma) can illustrate strategic interdependence and the options available to oligopolies. | Activities 3,4 on page: Game theory (HL only) |
| Explain and provide examples of the terms “collusion” and “cartel”. | Paper one style question on page: Game theory (HL only) |
| Explain the incentive of cartel members to cheat. Examine the conditions that make cartel structures difficult to maintain. | Activity 4 on page: Game theory (HL only) |
| Explain the term “tacit collusion”, including reference to price leadership by a dominant firm. | Activity 3 on page: Game theory (HL only) |
| Non-collusive oligopoly: Explain, using diagrams, that the behaviour of firms in a non-collusive oligopoly is strategic in order to take account of possible actions by rivals. Explain why non-price competition is common in oligopolistic markets, with reference to the risk of price wars. | Activities 3,5 on page: Oligopoly (HL only) |
Blank essay template available at: 
Section A essay template
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