waecE-LEARNING
Economics Paper 2, Nov/Dec 2014  
Questions: 1 2 3 4 5 6 7 8 Main
General Comments
Weakness/Remedies
Strength




QUESTION 2

The table below represents the output level of a particular firm.
Use the information in the table to answer the questions that follow:
           


OUTPUT(units)

    0
    12
    23
    36
    48
    58

Given the cost equation of the firm in dollars as C = 24 + 3q, where C is the total cost and q is the quantity produced, calculate the:
(a)        total cost of producing:
            (i)         12 units of output;
            (ii)        36 units of output.
(b)        average cost, when:
            (i)         48 units were produced;
            (ii)        58 units were produced.
(c)        marginal cost, when:
            (i)         23 units were produced;
            (ii)        36 units were produced.
(d)       If the firm is operating in a perfectly competitive market and the market price is $5 per unit, determine the profit when:
            (i)         23 units are produced;

            (ii)        48 units are produced


OBSERVATIONS

 

This question attracted many candidates and few of them scored above average marks. The question required candidates to calculate total cost, average cost, marginal cost and profit at different levels of output of a firm. Most candidates were able to calculate the total cost and average cost in the (a) and (b) parts of the question but were unable to calculate marginal cost and profit in the  (c) and (d) parts respectively. This made most of them to score average marks.

The candidates were expected to provide the following answers to obtain the maximum marks.

Given the cost equation of a firm as C           =          24 + 3q
Where C          =    Total cost; q    =    quantity produced.

The total cost of producing

(a)        (i)         12 units
           
                        C         =          24 + (3 x 12)
                                    =          24 + 36                                                                       
                                    =          $60     

            (ii)        36 units
           
                        C         =          24 + (3 x 36)  
                                    =          24 + 108                                                    
                                    =          $132   

 

(b)        (i)         Average cost at 48 units
           
                                    AC      =          TC
                                                             Q
                                    TC       =          24 + 3 (48) 
                                                =          24 + 144                                    
                                                =          168
                                                             48
                                                =          $3.50              
            (ii)        Average cost at 58 units

 

AC      =          TC
                                                             Q
                                    TC       =          24 + 3 (58)

                                                =          24 + 174
                                                =          198
                                                             58
                                                =          $3.41              

(c)        (i)         Marginal cost when 23 units are produced

                                    MC      =          TC2 - TC1   
                                                               Q2 – Q1        
                       
           
                                    TC2      =          24+ 3(23)        =          $ 93.00
                                    TC1      =          24+ 3(12)        =          $ 60.00
                                    Q2        =          23 units
                                    Q1        =          12 units

            MC 23  =          93 - 60 =          33
                                    23 - 12             11
                                                =          $3.00  

           

(ii)        Marginal cost at 36 units

            MC 36   =          TC36 – TC23                
                                     Q36 – Q23       
                       
           
                                    TC36     =          24+ 3(36)        =          $ 132.00
                                    TC23     =          24+ 3(23)        =          $ 93.00
                                    Q36       =          36 units
                                    Q23       =          23 units

            MC 36  =          132 - 93           =          39                  
                                    36 - 23                         13
                                                            =          $3.00  

(d)       (i)         Profit   =          TR       -           TC
                        TR       =          $5 x 23 units   =          $115  
                        TC       =          24 + 3q            =          24 + (3)(23)
                                    =          24 + 69
                                    =          $ 93                            
                                                                                                                     
                        Profit   =          $115 - $93       =          $22      

            (ii)        Profit   =          TR       -           TC
                        TR       =          $5 x 48 units   =          $240   
                        TC       =          24 +3(48)
                                    =          24 + 144
                                    =          $168                                   
                        Profit   =          $$240 - 168

                                    =          $72     

    

 

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