Market structures and marginal analysis

Practice

Recall it first, then use it — testing yourself builds the memory, where rereading the notes above only feels easier.

Recall and application shuffled together — you have to work out what each item wants before you can answer it, which is the part the exam actually tests. Both kinds feed the same spacing schedule, so anything you miss comes back sooner.

Say the answer out loud before flipping — that attempt is where the learning happens, even when you get it wrong.

Exam-style only. Instant feedback, shuffled each attempt, best score saved on this device.

What actually comes up

These papers are almost entirely graph annotation and short-answer explanation, not arithmetic — every year puts a monopoly graph, a perfect-competition graph responding to a cost or demand shock, and a natural-monopoly regulation question in front of you. Reading price/output/profit off a shifted curve is most of the mark, and every schedule transcribed here explicitly caps an answer that never names the graph it is using.

Across 4 years

The pattern — what to prepare

The 2022 paper ↗ Marking schedule ↗

Question One — Regulated natural monopoly

Graph One shows a natural monopoly regulated to marginal-cost pricing; Graph Two shows the same monopoly regulated to average-cost pricing instead.

• a On Graphs One and Two, show the impacts of regulating the natural monopolist to marginal-cost and average-cost pricing, labelling price, quantity, consumer surplus, and any deadweight loss. Merit
• b In Table One, identify the type of economic profit made by the natural monopolist under marginal-cost pricing regulation and under average-cost pricing regulation. Achieved
• c Compare and contrast the impacts of marginal-cost pricing regulation and average-cost pricing regulation on consumers, the natural monopolist, the Government, and allocative efficiency, referring to Graph One, Graph Two, and Table One. Excellence

Question Two — Perfect competition and a decrease in fixed costs

Firm A (a larger loan) and Firm B (a smaller loan) both earn subnormal profit in perfect competition. Lower interest rates reduce fixed costs by different amounts for each.

• a On Graphs Three and Four, show how lower interest rates lead Firm A to a supernormal profit and Firm B to a reduced subnormal profit, labelling any curve shifts and shading the profit. Merit
• b Compare and contrast how the varying decreases in fixed costs affect output level and the type of economic profit for Firm A and Firm B, explaining why output stays the same for both despite the different profit outcomes. Excellence
• c Show how the market and an individual firm still making subnormal profit will adjust in the long run, and explain the long-run profit situation for the individual firm, referring to the characteristics of perfect competition. Excellence

Question Three — Monopoly: rising variable costs vs rising demand

A monopoly making supernormal profit faces a rise in variable costs (freight, from COVID-19 border restrictions) in one scenario, and a rise in demand in another.

• a Complete the monopoly graph to reflect an increase in variable costs, then use marginal analysis to explain the output decision the monopolist might make. Merit
• b Complete the monopoly graph to reflect an increase in demand, labelling the new profit-maximising price and quantity and any change in the type of economic profit. Merit
• c Compare and contrast the impacts of increased variable costs with increased demand on the monopoly's long-run profitability, explaining why the increased demand is more beneficial to the monopoly than the increased variable costs. Excellence

The 2025 paper ↗ Marking schedule ↗

Question One — Monopoly

Graph One shows a monopoly in the short and long run. Graph Two shows the same monopoly before and after an increase in demand (the new demand shown as MR₁).

• a(ii) Explain the short- and long-run price, output, and profit positions of the monopoly, referring to Graph One and the key characteristics of a monopoly. Excellence
• a(iii) Explain, referring to Graph One, whether the monopoly is allocatively efficient. Merit
• b(iii) Use marginal analysis to explain the monopoly's profit-maximising output following the increase in demand, referring to Graph Two. Excellence
• b(iv) Explain the type of profit made before and after the increase in demand, and how the monopoly will respond to any change in profit levels. Excellence

Question Two — Perfect competition and a rise in costs

Farmers, as perfect competitors, face rising council rates (a fixed cost) and rising fertiliser costs (a variable cost). Graph Three shows increased fixed costs; Graph Four shows increased variable costs.

• a(i) Explain the difference between fixed costs and variable costs, referring to the resource material. Achieved
• a(iv) Explain any difference in the short-run profit-maximising output for the farmer following an increase in fixed costs compared to an increase in variable costs, referring to the cost-curve shifts on Graph Three and Graph Four. Excellence
• b(ii) Compare and contrast the short- and long-run profit-maximising positions for the perfect competitor following an increase in fixed costs, referring to Graph Three, the characteristics of perfect competition, and marginal analysis. Excellence

Question Three — Natural monopoly

An unregulated natural monopoly (Graph Five) in an industry with significant economies of scale (electricity grids, water, pipelines), where duplicating infrastructure would be wasteful. The Government could instead regulate it to marginal-cost pricing.

• a(ii) Explain why the Government might not encourage competition, despite the inefficiencies the natural monopoly creates, referring to the characteristics of a natural monopoly, Graph Five, and the resource material. Merit
• a(iii) Explain why the unregulated natural monopoly might choose to produce at output level Qe, referring to Graph Five and marginal analysis. Merit
• b(ii) Compare and contrast the price and profit positions of the regulated and unregulated natural monopoly, explaining how the prices are set and the impact on the monopoly's long-term viability. Excellence

The 2024 paper ↗ Marking schedule ↗

Question One — Perfect competition in the short and long run

Graph One shows a perfect-competition firm making a subnormal (loss) profit. Later, severe weather events disrupt output across the market (Graph Two) and for one firm (Graph Three).

• a(iii) Explain how the perfect competitor reaches its long-run equilibrium — covering price, output, and profit — referring to marginal analysis, the characteristics of perfect competition, and Graph One. Excellence
• c Referring to Graph Two (the market) and Graph Three (the firm), compare and contrast the impact of the severe weather events on the market and the firm, explaining in detail why the market quantity decreases while the firm's output increases. Excellence

Question Two — Monopoly in the short and long run

Graph Four shows a monopoly in the short and long run. Graph Five shows the same monopoly after a fall in demand (new AR₁/MR₁ curves given).

• b Compare and contrast the short- and long-run profit-maximising positions for the monopoly, referring to Graph Four, the characteristics of monopoly, and output, price, and profit. Excellence
• c(ii) Explain why a fall in demand threatens the survival of the monopoly in the long run, referring to Graph Five, marginal analysis, and the impact on output and profit. Excellence

Question Three — Natural monopoly

Graph Six labels points along a natural monopoly's curves; Table One asks for price, output, consumer surplus and deadweight loss under profit-maximising, average-cost, and marginal-cost pricing.

• b(i) Explain in detail which pricing option leaves consumers best off, and which leaves them worst off. Excellence
• b(ii) Explain in detail which pricing option is most allocatively efficient, and which is least efficient. Excellence
• b(iii) Explain in detail the profit made by the natural monopolist under each of the three pricing options, and how the Government is affected. Excellence

The 2023 paper ↗ Marking schedule ↗

Question One — Perfect competition and monopoly

Graph One shows a perfect competitor earning supernormal profit in the short run; Graph Two shows a monopoly earning supernormal profit in the short run.

• a(ii) Using marginal analysis, explain why the perfect competitor might not choose to produce at output level Q₁, or at output level Q₂, instead of the profit-maximising Qe. Merit
• c(i) Compare and contrast the long-run profit-maximising output and profit levels of the perfectly competitive firm and the monopoly, referring to their characteristics and to Graphs One and Two. Excellence

Question Two — Natural monopoly

Graph Three shows a natural monopoly operating at profit-maximising; Graph Four shows the same natural monopoly regulated to average-cost pricing. An alternative to regulation is a targeted tax on the monopolist's supernormal profit.

• a(ii) Explain, referring to the characteristics of a natural monopoly, Graph Three, and the resource material, why the Government might prefer not to encourage competition. Merit
• b Compare and contrast the impacts on the natural monopolist of a targeted tax on supernormal profit at profit-maximising, versus regulation to average-cost pricing — considering consumer surplus, allocative efficiency, the monopolist's profit, and the Government. Excellence

Question Three — Perfect competition in the short and long run

Rising insurance premiums (a fixed cost) push a perfect-competition firm's average cost curve up to AC₁ (Graph Six); Graph Five shows the resulting market adjustment.

• a(i) Explain why an increase in insurance cost increases average cost but does not affect marginal cost. Achieved
• a(iii) Explain the short- and long-run price and profit situation for the firm following the increase in average cost, referring to the characteristics of perfect competition, and to Graph Five and Graph Six. Excellence

These papers are almost entirely graph annotation and short-answer explanation — very little arithmetic — so practise sketching and labelling the curves themselves, not just reciting the theory behind them.

Past exams & resources

⏱ Timed opens the paper and starts a countdown matching the exam length. Official NZQA PDFs. If a link 404s, that year’s paper may sit under a slightly different code: browse the NZQA subject page.