Using appropriate diagrams, compare and contrast the law of diminishing marginal returns with the decreasing returns to scale.

Carefully define the long-run average total cost curve of firms and explain, using a diagram, the reason for its typical shape.

Analyse the concept of market failure as a failure of markets to achieve allocative efficiency.

Examine the implications for a business of changes in the prices goods that are related to the one it offers.

Explain why the price elasticity of demand for many primary commodities is relatively low while the price elasticity of demand for manufactured products is relatively high.

Explain using an example why firms will choose to operate in the long run despite earning zero economic profits.

Explain why the opportunity cost of entrepreneurship, an element of normal profits, is part of the economic costs of a firm.

Discuss the consequences of providing a subsidy on the stakeholders in a market.

Explain, using diagrams, under what conditions and in which market structures positive economic profits are unlikely to persist in the long run.

Explain why governments provide subsidies, and describe examples of subsidies.

Explain, using appropriate diagram(s), why, despite the absence of supernormal profits in a monopolistically competitive market, firms achieve neither allocative efficiency, nor productive efficiency.

Explain, with the help of diagrams, (i) how the market for beer will be affected by a tax on hard liquor such as whisky and vodka, (ii) how the market for oranges will be affected if farmers can sell lemons at a higher price, (iii) how the demand for red wine will be affected if its price decreases.

Explain what price, income and cross elasticities of demand measure.

Discuss, using diagrams wherever appropriate, the significance of price elasticity of demand for both firms and the government.