Oil production is capital-intensive. Because it creates pollution, it is one cause of environmental market failure. In Nigeria, an oil monopoly is beginning to make more environmentally friendly liquefied petroleum gas (LPG) instead of kerosene in order to cut pollution. The Nigerian government plans to break the monopoly firm into separate companies to raise efficiency.
(a)[2]
Identify any two characteristics of a capital-intensive production process.
(b)[4]
Explain how market failure could arise in the oil industry.
(c)[6]
Analyse, using a production possibility curve (PPC) diagram, what happens when resources are shifted from kerosene to LPG.
(d)[8]
Discuss whether removing a firm’s monopoly power would help consumers.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “A production process that depends heavily on capital goods, for example machines” …