Question

1. The equilibrium position of a firm is illustrated in the diagram below (cost/price curve showing ATC, MC, AR=MR). Study the diagram and answer the questions that follow.
(a) Determine the firm's: (i) equilibrium output level; (ii) equilibrium price.
(b) At the equilibrium output, calculate the firm's: (i) total cost; (ii) total revenue; (iii) total profit.
(c) Is the firm operating in the long-run or short-run? Explain your answer.
(d)(i) What type of market is the firm operating in? (ii) List three features of the market type identified in (d)(i).

Accepted Answer

(a)(i) Equilibrium output level = 50 units. (ii) Equilibrium price = $40.00.
(b)(i) Total cost (TC) = AC×Q = $30×50 = $1500. (ii) Total revenue (TR) = AR×Q = $40×50 = $2000. (iii) Total profit = TR−TC = $2000−$1500 = $500.
(c) The firm is operating in the short-run because it is operating in a perfect market and it made abnormal/super-normal profit, where price exceeds average cost and average revenue exceeds average cost.
(d)(i) Perfectly competitive market/perfect market. (ii) Features: there are many buyers and sellers; there is free entry and exit into and from the market; sellers are price takers/there is one market clearing price/there is no government intervention; there is perfect knowledge about the market; there are no extra transport costs incurred.

WAEC Economics 2023 Theory — Question 1

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