A competitive firm can make supernormal profits or losses in the short run, but moves to normal profit in the long run. A monopoly can sustain supernormal profits in both. Why This Question Matters for DSE Economics
Although the HKCEE format was replaced by the Hong Kong Diploma of Secondary Education (HKDSE), this specific question remains highly relevant. The relationship between MRcap M cap R MCcap M cap C hkcee 2010 econ paper 2 q2
Reward for entrepreneurship (e.g., returns to the owner for taking risks). (Alternative: Interest for capital) A competitive firm can make supernormal profits or
: Based on typical HKCEE feedback, examiners frequently noted that students struggle with: The relationship between MRcap M cap R MCcap
| Mistake | Consequence | Correction | |--------|------------|-------------| | Using Qs (20) instead of Qd (10) to calculate CS | Overstates CS | In a price floor, actual trade = quantity demanded | | Forgetting that PS should use quantity sold (10), not quantity supplied (20) | Overstates PS | Unless government buys surplus, unsold stock yields no revenue | | Miscalculating intercepts | Wrong surplus areas | Always derive demand/supply intercepts from equations | | Stating that total surplus increases | Wrong conclusion | Any binding price floor reduces total surplus (DWL>0) | | Ignoring the possibility of non-binding floor | Misses part (b) marks | Always compare floor price to equilibrium price first |
(Note: In Paper 2 MCQs, Q2 typically covers National Income or Basic Economic Concepts. Below is the standard solution for the specific Q2 from the 2010 paper regarding National Income statistics.)