GRADE 11
PAPER 2
JUNE EXAMINATION
Memorandum
2015
QUESTION 1
1.1
1.1.1
A 
1.1.2
A 
1.1.3
B 
1.1.4
B 
1.1.5
C 
1.1.6
B 
1.1.7
C 
1.1.8
A 
(8×2=16)
1.2
1.2.1
F 
1.2.2
I 
1.2.3
A 
1.2.4
H 
1.2.5
C
1.2.6
D 
1.2.7
B 
1.2.8
E 
(8×1=8)
1.3
1.3.1
Downward / negative slope 
1.3.2
MR=MC 
1.3.3
Average Revenue 
1.3.4
Oligopoly 
1.3.5
Markets 
1.3.6
competition tribunal 
(6×1=6)
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1
QUESTION 2
2.
2.1
PED is a measure of how responsive demand is to a
change in price. 
(2×2=4)
2.2
2.2.1 Graph B 
(2)
2.2.2 Minimum earnings required to prevent entrepreneur from leaving
the production sector (AR = AC) 
(3)
2.2.3 E2 or MR=MC 
(2)
2.2.4 (R6×60) – (R8×60)  = total economic loss
R360-R480= -R120 
(3)
2.3
2.3.1 Collusion is an agreement between business with the aim to
limit competition between them. 
(2)
2.3.2 Type of product:  Wine is a differentiated product
Market entry:  Although it is free, it is not easy. 
Control over price: Consol and Nampak has considerable control
over prices, but not as much as Owens Illinois as a monopolist
Mutual Dependence: One business is influenced by the other
business action.
(2×2=4)
2.3.3 Through the competition policy government can:
Prevent the abuse of economic power
Prevent the growth of market power
Prevent restrictive practices
2.3.4 Positive effect on local wine prices (decrease) - ceteris paribus
(2)
(2)
(5×2=10)
2
2.4
Many buyers 
The number of buyers in the market is so large that individual market
participants are insignificant in relation to the market as a whole. 
This has the important implication that no individual buyer is able to
influence the market price.
Many sellers 
The number of sellers in the market is so large that the individual
cannot influence the market price (price takers). 
seller
Homogenous product 
All the products sold in the specific market are homogenous, that is they are
exactly the same regarding quality, appearance, etc. 
It makes no difference to a buyer where or from whom he/she buys the
product.
Freedom of entry / exit 
There is complete freedom of entry and exit, that is to say the
fully accessible. 
market is
(4×2=8)
2.5
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QUESTION 3
3.1
Demand for the product of the industry is also the demand for the
product of the monopolist. 
Demand curve slopes downward from left to right. 
The firm can fix the price at which it wants to sell its products.
Is a market with only one seller.
The product has no close substitutes.
Entry into the market is not free
(Any TWO relevant answers)
(2×2=4)
3
3.2
3.2.1 A market situation where at least one of the conditions for perfect
competition are not satisfied. 
(2)
3.2.2 Short-run
(2)
3.2.3 The position of MC and MR where MC = MR
(2)
3.2.4 R,a,b,C
(2)
3.2.5 Will decrease to equilibrium point k. 
(2)
(10)
3.3
Output
per week
0
1
2
3
4
5
3.3.3
TR per
week
0
60
110
150
180
200
TC per
week
20
50
90
140
200
Profit per
week
(3.3.1)
40
60
60
40
0

MR
MC
(3.3.2)
60
50
40
30
20

20
30
40
50
60
Output level is 3  (MC = MR)
3.3.4
3.4
Prevent the abuse of economic power, e.g. by a monopolist. 
Regulate the growth of market power by means of takeovers and mergers. 
Contribute to the developmental objectives of the state. 
Prevent price fixing. 
Promote competition
Improve efficiency of markets through legislation.
(4×2=8)
4
3.5
/40/
QUESTION 4
4.1
4.2
4.2.1
4.2.2
Pure oligopoly: product is homogenous. 
Differentiated oligopoly: product is differentiated. 
Perfect market
(2×2=4)
(2)
Market demand and supply established the price in the market (R8) 
The original producer on the market is a price taker and will sell any
quantity at the price of R8. (any two)
(2)
5
4.2.3
(6)
(10)
4.3
4.3.1
A:
B:
C:
D:
E:
60 
10 
140 
60 
43 
(5×2=10)
4.4
There are no barriers to entry or exit (entry into the market is free). 
The business has little control over the prices of products. 
Information for buyers and sellers is incomplete. 
Large number of diverse firms
The nature of the product is differentiated (heterogeneous products)
Hybrid structure
Often it is local
(4×2=8)
4.5
The Competition Commission tries to give all South Africans
equal opportunities to participate fairly in economic activities in
order to make the economy more efficient. 
The CC must by advised of any mergers and takeovers. 
Mergers cannot take place without the consent of the Commission. 
When the CC evaluates mergers, any matters relating to
competition and efficiency, and the public interest, must be taken
into account. 
(4×2=8)
/40/
6
SECTION C
STRUCTURE OF ESSAY: MARK ALLOCATION:
Introduction
Max. 2
Body:
Max 36
Conclusion
Max. 2
TOTAL
40
QUESTION 5:
(8)
A. Definition of monopoly

It is a market structure in which there is only ONE seller of a good or service
that has no close substitutes, entry into that market is completely blocked. 
(2)
B. FEATURES/CHARACTERISTICS OF A MONOPOLY:
They are faced with downward-sloping demand curves


Monopolists are also faced with a demand curve for their product, but because they
are the only supplier of the product they can decide at what point on the demand
curve they wish to be. 
Because the monopolist is the only supplier of the product in the market, the demand
curve that faces the monopolist is that of the market as a whole – that is, the market
demand curve which slopes downwards from top left to bottom right.
7
They decide on their production levels

Once a monopolist has decided on a price, the quantity sold is determined by
market demand. 

By reducing the price, the monopolist can sell more units of the product, and viceversa.
To a significant extent, monopolists can influence the price-quantity combination of
the product they sell.
Other participants cannot act because a basic requirement for the existence of a
monopoly is that entry to the market is totally blocked.


They are exposed to market forces

Although the monopolist is the only supplier of a product, the product is still
influenced by market forces in the economy. 

e.g. Consumers have limited budgets and therefore monopolies cannot charge
excessive prices for their products.
The monopolist's product has to compete for customers' favour with all the other
products available in the economy.

They face substitutes


There are few products that have no close substitutes whatsoever. 
For example, for many years, even though there was no competition for telephone
services in South Africa, consumers could still consider using alternative forms of
communication such as letters and messengers.
They may exploit consumers

Because a monopolist is the only supplier of a product there is always the
possibility of consumer exploitation. 


Government is continually taking steps to guard against such practices.
Example: the Competition Act 89 of 1998.
8
They are protected by barriers to entry
Artificial Monopolies



Barriers to enter the market are not economic in nature. 
A firm may enjoy favourable circumstances/limited size of markets.
Sometimes an entrepreneur may enjoy favourable circumstances in a certain
geographical area.

Example: there may only be one supplier of milk in a particular town, or
hardware store, or hotel may be the only one of its kind in the vicinity.



The exclusive ownership of raw materials.
Example: De Beers Consolidated Mines (diamonds)
A patent, which is the legal right whereby a patent holder obtains the exclusive
right to manufacture a product.






Example: Kreepy-Krauly
Licensing is another way in which artificial monopoly comes to existence.
Example: SABC/Cell C/Vodacom/MTN.
Legal restrictions, where there are laws protecting them.
Example: the Post Office in South Africa.
Technical superiority, a business whose technological expertise vastly exceeds that
of any potential competitor.
Example: Microsoft
Deliberately created entry barriers
Example: To start costly lawsuits against new rivals.



Natural monopolies






High development costs limit entry into the market. 
E.g. electricity supply
They are owned or regulated by the government.
It is a large and expensive process – It can cost billions of rands.
A single business in the industry can serve the whole market.
They can do it at a lower price than two or more businesses together.
(18)
ADDITIONAL
More transparency; Better management; Maintenance of power stations;
Assuring that there is enough supply of coal at power stations; Less focus on BEE
and affirmative action; Retaining skilled employees; More attention to training for
technological & scenario planning
In the long term build new power stations.
(10)
CONCLUSION
(2)
[40]
9
QUESTION 6:
It is the aim of firms operating in a free-market system to maximize their
profits. The industry is characterized by freedom of entry and exit. Therefore,
the individual business is a price taker.
Write an essay and explain with the aid of a diagram how long-term
equilibrium for the industry is achieved under conditions of perfect
competition.
INTRODUCTION
The industry is the sum of all the individual businesses involved in a particular
industry. 
The LAC curve indicates the lowest cost per unit at which any particular output, as
indicated on the horizontal axis, can be produced in the long term. Industry is made
up of all individual businesses that supply output to particular market e.g. wheat
market.
(max 2 marks)
BODY
- In long term all factors of production are variable (mobile) – business can
adapt capacity in full. 
- Businesses will not be making an economic profit or loss over the long term. 
- Businesses entering market and others makings readjustments – equilibrium
where all businesses are merely making normal profits.
- Industry as a whole can expand or shrink, because new businesses could enter
market or existing businesses could exit.
- Graph illustrates the way in which businesses that are making an economic profit
adapt their equilibrium position in the long term under perfect competition.
- ECONOMIC PROFIT
- Suppose business short-term plant is represented by SAC1. 
- With market price P1 business is making economic profit of P1 E1 F P2 with
short-term plant-size represented by SAC1. 
- At price P1 business will maximize profit in short term at point E1, where principle
of profit maximization MR = MC applies and quantity q1 will be produced.
- BIGGER PLANT, LOWER UNIT COSTS
- When doing good estimate, if they expand, be able to produce at lower unit cost
in long term (descending portion of LAC-curve). 
- Possibility of bigger profit will lead to bigger plant being built. 
- Business will not be interested in producing at levels higher than E2 of LAC
because it represents higher cost levels
- internal scale disadvantages (diseconomies of scale) cause LAC to rise to right of
point E2.
10
- NEW ENTRANTS, INCREASED SUPPLY
- Economic profit attracts new businesses to industry because quantity offered on
market increases as result of expansion by existing businesses 
- supply curve shift to right (S to S1) – price drops until it reaches price level P. 
- Price P is at same level as minimum point in LAC where total revenue OP x Oq2
equals total cost Oq2 x q2E2 = normal profit
- long-term equilibrium
- INITIAL LOSSES
- Process of adjustment of businesses who made economic profits was discussed
above. 
- If business however made losses (market price below minimum point of long-term
average cost curve) process works other way round
- eventually LAC curve from tangent with demand curve and businesses remaining
in industry will be making normal profit.
- PRICES IN LONG TERM
- Above analysis leads to conclusion that under perfect competition price of product
in long term will settle at level that corresponds to lowest point of LAC curve.
- Point E2 represents equilibrium in long term
- no incentive to leave or enter industry
- when market price has been established under perfect competition at level where
each business is in equilibrium at minimum point of its LAC curve, the industry will
also be in long-term equilibrium.
- EQUILIBRIUM
- once long-term equilibrium has been achieved, provided no changes in technology
or factors of production, there will be no further entry or exit of businesses.
(14 max)
11
(4 max)
(8 max)
12
ADDITIONAL

Oligopoly has more advantages:
Comparison with perfect competition
-
-
Oligopolists can make an economic profit in the long term. 
Opposite to a perfect competitor where businesses can only make a normal
profit in the long term. 
An oligopolist will not produce at the minimum point of the LAC-curve, as in the
case of a perfect competitor. 
The price of a product of an oligopolist is higher than the marginal cost which
means that the community puts higher value to an addition unit as to the
resources used to produce the product. 
The oligopolist will produce less at a higher price than a perfect competitor. 
(10 max)
OR
Comparison
perfect competition : Oligopoly
Perfect Competition
Price taker
Price – Price of product will be equal to
marginal cost
Production – produce more products
and sell any quantity at market price
Produce at the lowest point of the long
term average cost curve (LAC)
Normal profit on the long term
Demand curve (MR) is horizontal
Homogeneous products
No product differentiation
Oligopoly
Collective price makers
Price – Price of product will be higher
than the marginal cost
Consumers attach a greater value to the
additional unit than the resources
required to produce it.
Production - produce less products and
sell products at a higher price
It is unlikely that an Oligopolist will
produce at the lowest point of the longterm average cost curve (LAC)
Economic profit on the long term
Demand curve (AR) from left down to
right – a kinked curve
Homogeneous or differentiated products
(10)
CONCLUSION
Any suitable sentence – 2 marks max
[40]
13