2024 H2 Economics Paper 2 Essay 1: Suggested Answers
How to use these essay answers. The responses below, including the part (a) answer, are structured guides to the requirements of the question, the content, analysis and evaluation a strong answer must cover, rather than full essay prose with a written introduction and conclusion. Use them to see what to include and how to build the argument, then write it up in your own continuous prose, adding your own introduction and conclusion.
This essay examines internal and external economies of scale and their link to long run average cost, then asks whether gaining economies of scale is the only justification for mergers and acquisitions.
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Explain internal economies of scale and external economies of scale and their link to a firm's long-run average cost of production.
Internal economies of scale. These are cost savings a firm enjoys as it increases its own scale of production. They arise within the firm from factors such as specialisation, better utilisation of resources, and bulk buying of raw materials. As output rises, fixed costs such as machinery or production facilities are spread over more units, lowering average fixed cost per unit.
A clear example is the airline industry. As an airline grows it can reap technical economies of scale by operating larger and more efficient aircraft such as the Airbus A350 or Boeing 787, which carry more passengers, burn less fuel per passenger, and need proportionally fewer crew per passenger, lowering average costs. On the firm's long run average cost (LRAC) curve, internal economies of scale appear as a movement down the curve, with LRAC falling from C0 to C1 as output rises from Q0 to Q1 along the downward sloping portion.
External economies of scale. These are cost reductions a firm enjoys because the whole industry grows, rather than because of its own expansion. They arise from improvements in the external environment, such as better infrastructure, a deeper pool of skilled labour, and shared technological advances.
A prominent example is the tech cluster in Silicon Valley, where agglomeration gives firms access to skilled labour, specialised suppliers, and knowledge spillovers, while shared infrastructure lowers costs for every firm in the region. On the LRAC curve, external economies of scale appear as a downward shift of the entire curve, from LRAC0 to LRAC1, so the firm can produce the same output at a lower cost because of industry wide improvements.
Define both, give the within firm versus whole industry distinction, and link each correctly to a movement along versus a shift of the LRAC curve.
Discuss whether gaining economies of scale is the only justification for mergers and acquisitions.
- Define mergers and acquisitions and frame the question as one justification against several alternatives.
- Develop the economies of scale justification with a cost and profit mechanism, then qualify it with the risk that the savings may not materialise.
- Select one alternative motive and explain how it benefits the merged firm.
- Select a second, distinct alternative motive and explain its strategic logic.
- Weigh the motives against each other, noting what their success depends on.
- Reach an evaluative conclusion on whether economies of scale is the sole justification.
This part is gated. The full model answer with the worked cost and profit diagram and the evaluation, with the diagrams and the full evaluation, is in the ETG TYS Answers book from SAP and is worked live in the TYS Crashcourse. ETG students also get the AI TYS coach that guides them through this exact question. Message the team to find out more.
Tests: Economies of scale, Monopoly
Questions students ask
Where can I get the full worked answers to the 2024 H2 Economics paper 2 essay 1?
The full model answers, with the diagrams and the higher mark evaluation, are in the ETG TYS Answers book published by SAP and sold at Popular, and are worked live in the TYS Crashcourse. Every ETG student also gets the AI TYS coach on our learning management system, which guides you through how to tackle every essay and every case study question from the last ten years.
Are these the official 2024 A Level Economics answers?
No. SEAB sets and marks the A Level paper. These are suggested answers by Mr Eugene Toh, author of the H1 and H2 A Level Economics TYS answer keys, published by SAP and sold at Popular.
How should I use these suggested essay answers?
Treat them as a guide to the requirements of the question, the content, analysis and evaluation a strong answer must cover, not as full essay prose. Write the essay up in your own continuous prose, with your own introduction and conclusion.
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