Firms' Decisions and Strategies
H2 Economics - syllabus 9570, 2026
Original teaching notes
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Explain how firms compete and evaluate pricing, growth, innovation and shutdown decisions.
- Identify the market structure
The number of firms is only one feature of a market.
- Explain existing and potential competition
A credible threat of entry can influence an incumbent's decisions.
- Evaluate a price cut
A price cut must cover its extra costs and survive rivals' responses.
- Explain third-degree price discrimination
Different group prices require market power and workable separation.
- Compare differentiation and marketing
A distinct product can change demand, costs and competitive pressure.
- Assess innovation and technological disruption
New technology creates opportunities as well as adjustment costs.
- Assess growth and diversification
A larger or more diversified firm is not automatically more profitable.
- Explain collusion and incentives to deviate
Firms may gain jointly from coordination but still want to undercut it.
- Compare operation, shutdown and exit
Operating at a loss can be better than closing temporarily.
- Distinguish three kinds of efficiency
Lower costs, appropriate output and innovation are separate outcomes.
- Assess consumers and rival firms separately
Consumers and rival firms can be affected in different ways.
- Recognise three consumer biases
Past costs, reference points and noticeable information can influence choices.
- Evaluate a strategy with social and environmental effects
Assess the actual social and environmental effects of a strategy.