This document provides sample questions and answers about monopolistic competition for the IB Economics exam. It includes practice questions asking students to draw diagrams showing a firm's profits under monopolistic competition and when abnormal profits can occur. It also provides past paper questions asking students to use diagrams to explain why firms under monopolistic competition are neither allocatively nor productively efficient. Sample answers define key terms and use diagrams and explanations involving marginal cost curves. One question examines whether a monopoly retailer or small shops under monopolistic competition are more beneficial to consumers for the food market. Possible responses consider definitions, diagrams, impacts on efficiency, prices, and welfare.

1. Monopolistic Competition Essay Questions (IB)
IB ECONOMICS - 1.5 THEORY OF THE FIRM AND MARKET
STRUCTURES (HL ONLY)

2. Practice Question
Draw the diagram of a firm making normal profits under monopolistic competition. When will the
firm be able to make abnormal profits and why will they usually make normal profits? [10 marks]

3. Past Paper Question
Using a diagram, explain why firms in monopolistic competition are neither allocative nor
productively efficient. [10 marks]

4. Past Paper Question
Using a diagram, explain why firms in monopolistic competition are neither allocative nor
productively efficient. [10 marks]
Answers may include:
• Definitions of monopolistic competition, allocative efficiency and productive efficiency
• Diagram of monopolistic competition
• An explanation of monopolistic competition showing that it cannot be productively efficient
because it does not produce where or allocatively efficient because it does not produce where
MC=ATC or MC=AR
• Examples to support the explanation given.

5. Past Paper Question
Examine the view that the market for food is more beneficial to consumers if dominated by a
monopoly retailer (supermarket) rather than by a large number of small shops operating under
monopolistic competition. [15 marks]

6. Past Paper Question
Examine the view that the market for food is more beneficial to consumers if dominated by a monopoly
retailer (supermarket) rather than by a large number of small shops operating under monopolistic
competition. [15 marks]
Answers may include:
• Definitions of monopoly, monopolistic competition
• An explanation of theory of the firm related to retail markets, how both monopoly and monopolistic
competition have their advantages and disadvantages in terms of costs, price and output
• Diagram to show the possible impact on consumers under monopoly and monopolistic competition in terms of
price
• Examples of relevant market structures
• Synthesis and evaluation (examine).
Command term
“Examine” requires candidates to consider an argument or concept in a way that uncovers the assumptions and
interrelationships of the issue.
Factors considered may include: the effects on efficiency and customer service, welfare effects, price and output,
and economies of scale.