The lesson
Focus on the AQA MCQ and short explanation technique. Use this page as a fast, high-quality revision pass—not a wall of notes to memorise.
Perfect competition vs Monopoly
Perfect competition is price-taking with allocative and productive efficiency in the long run. Monopolies are price-makers, protected by high barriers to entry, leading to market-power inefficiencies.
- Perfect competition has homogenous products, perfect information, and no barriers to entry.
- Monopoly produces where MC = MR, leading to higher prices and lower output than the socially optimal level.
- Monopolies can achieve economies of scale and dynamic efficiency through long-run supernormal profits.
Labour market determinants
Wages in competitive labour markets are determined by demand (Marginal Revenue Product of Labour) and supply of labour. Monopsonies can exploit workers by paying lower wages.
- MRP of labour represents the additional revenue a firm gains by hiring one more worker.
- Minimum wage laws and trade unions seek to raise wages, but may cause unemployment in competitive markets.
- A monopsony buyer faces a rising labour supply curve, making marginal cost of labour exceed the wage rate.
Worked exam thinking
Worked example: monopsony hiring
Prompt: A monopsony employer hires workers. Why is the marginal cost of hiring a worker higher than the wage paid to that worker?
How to turn knowledge into marks
Use this answer route
For a focused explanation or short evaluation question on this topic:
- 1Identify the correct answer.
- 2Use key definitions and economics terms.
- 3Explain why the correct option holds.
- 4Briefly show why other options are incorrect.
Quick questions
Check your understanding
What is allocative efficiency?
It occurs where price equals marginal cost (P = MC), meaning resources are allocated in line with consumer preferences.
What is MRP of labour?
Marginal Revenue Product: Marginal Product of Labour multiplied by Marginal Revenue.
How does monopsony power affect wages?
It allows firms to restrict employment and pay wages below competitive levels.