Question

2. The cost and output schedule of a firm is shown in the table below:
Output (kg): 0,15,35,60,85. Variable Cost($):0,30,55,75,90. Total Cost($):15,45,70,90,105. Total Revenue($):0,30,70,120,170.
(a) Using the data in the table, at each level of output, calculate the firm's (i) marginal revenue; (ii) marginal cost.
(b) At what output level did the firm: (i) break even; (ii) make the highest profit; (iii) attain equilibrium?
(c) Identify the market structure in which the firm operates.

Accepted Answer

(a)(i) Marginal Revenue (ΔTR/ΔOutput) between successive outputs works out to $2 at each interval (e.g. (30−0)/(15−0)=2; (70−30)/(35−15)=2; (120−70)/(60−35)=2; (170−120)/(85−60)=2). (ii) Marginal Cost (ΔTC/ΔOutput): between 0–15: (45−15)/15=$2.00; 15–35: (70−45)/20=$1.25; 35–60: (90−70)/25=$0.80; 60–85: (105−90)/25=$0.60.
(b)(i) Break-even is where Total Revenue = Total Cost, i.e. $70=$70 at 35 units of output.
(ii) Profit = TR−TC at each level: 0:(15), 15:(15), 35:0, 60:30, 85:65. The highest profit ($65) is made at 85 units of output.
(iii) Equilibrium (profit-maximising output) is achieved where MR=MC; from the table this occurs at 35 units (MR=MC=$2), though the highest observed profit is at 85 units given the discrete data provided.
(c) The firm operates in an imperfect market, because profit can still be increased by selling more units rather than being fixed at a single competitive price.

WAEC Economics 2018 Theory — Question 2

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