Question

2. Table 1 below represents the output levels of a firm producing hand sanitizer. Use the information to answer the questions that follow.
Table 1 — Output (units): 0, 10, 18, 28, 36, 45
If the cost function of the firm is given as C = 30 + 4q, where C is the total cost and q is the units produced, calculate:
(a) total cost in dollars of producing: (i) 18 units; (ii) 36 units.
(b) average cost in dollars of producing: (i) 28 units; (ii) 45 units.
(c) What is the marginal cost in dollars of producing 28 units?
(d) Determine the profit made from producing 45 units when the market price is fixed at $5.00 per unit.
(e) Determine the fixed cost of the firm. Explain your answer.

Accepted Answer

(a)(i) TC₁₈ = 30+4(18) = 30+72 = $102. (ii) TC₃₆ = 30+4(36) = 30+144 = $174.
(b)(i) AC₂₈ = TC₂₈/28 = [30+4(28)]/28 = 142/28 = $5.07 or $5.1. (ii) AC₄₅ = TC₄₅/45 = [30+4(45)]/45 = 210/45 = $4.67.
(c) MC = (TC₂₈−TC₁₈)/(28−18) = (142−102)/10 = 40/10 = $4.00.
(d) Profit = TR−TC = (5×45)−TC₄₅ = 225−210 = $15.
(e) Fixed cost of the firm is $30, because when q=0, C = 30+4(0) = $30; i.e. at output 0, total fixed cost incurred is $30 (the constant term in the cost function that does not vary with output).

WAEC Economics 2023 Theory — Question 2

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