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A-Level The Decisions and Strategies of Firms

What the A-Level syllabus expects for The Decisions and Strategies of Firms, and how to practise it.

What the syllabus expects

Firms take decisions and adopt pricing, cost and product-differentiation tactics meant to push revenue upward or bring unit costs down. Such tactics span colluding with rival firms, marketing, third degree price discrimination, research alongside development and innovation, and the options of diversification, shutting down and growth.
In deciding and strategising, firms weigh both the current and the potential competition present in their industry.
How the choices and strategies of firms touch three things: competing firms (in their profit, revenue and cost), the welfare of consumers (taking in consumer surplus, the quality of the product and the range of consumer choice), and efficiency of the allocative, productive and dynamic sorts.
Scope: Students should know that economists sort firms into four market structures - monopoly, perfect competition, oligopoly and monopolistic competition - by features like barriers to entry, the nature of the product and the number and size of firms. No diagrams are needed for comparing those structures, for the shut-down condition or price discrimination, or for the move from short-run to long-run equilibrium. Students should also grasp that, when shaping strategies, firms may lean on consumers' cognitive biases (loss aversion, salience bias or the sunk cost fallacy), may encounter technological disruption within their industry, and may weave social and environmental concerns into their decisions.

About 11% of the past-paper style questions in Rae's bank for this subject sit in this topic.