Economics Paper 2, Aug./Sept. 2018

Question 1

A firm produced 3,000 units of its product and sold them at $6.00 each. Its cost of operation during the period is listed in the table below:

S/N	ITEM	AMOUNT ($)
1. 2. 3. 4. 5. 6. 7.	Processing machine Manager’s salary Wages to casual labour Fuel Raw materials Factory rent Electricity bill	2,000 1,500 2,500 600 1,400 1,200 800

Table 1

For the period of operation as shown in Table 1, determine the firm’s:
1. fixed cost;
2. variable cost;
3. average cost.
Calculate the firm’s total profit for the period.
Calculate the tax paid by the firm if the tax was 10% of its profit.
Distinguish between fixed cost and variable cost of any given firm.

Observation

This is one of the data response questions and it was attempted by few candidates. The question required the candidates to determine the firm’s fixed, variable and average costs in the (a) part, calculate the firm’s profit and tax in the (b) and (c) parts respectively and to distinguish between fixed and variable costs of a firm. Most candidates who attempted this question were able to determine the firm’s cost in the (a) part and firm’s profit and tax paid by the firm in the (b) and (c) parts of the question respectively but only few of them could adequately distinguish between fixed and variable costs of a firm, hence they could not obtain the maximum mark.
The candidates were expected to provide the following answers to score higher marks.

1. Firm’s Fixed Cost = Processing machine($2,000) + Manager’s salary($1,500) + Factory rent($1,200)
  = $4,700
2. Firm’s Variable Cost = Wages to casual labour($2,500) + Fuel($600) + Raw materials($1,400) + electricity bill($800)
  = $5,300
3. Total cost = FC + VC
             = $4,700 + $5,300
              OR
             = $2,000+$1,500+$2,500+$600+$1,400+$1,200+$800
             = $10,000
  
     Average cost = TC = $10,000
                  Q     3,000
                     = $3.33

Total profit           = Total revenue - Total cost

                    = (3,000 x $6) - ($10,000)

                    = $18,000 - $10,000

                    = $8,000

Tax paid = 10% of $8,000
         = 10    x   $8,000
           100        1
         = $800

Fixed cost is cost which does not vary with level of output e.g. plants and machinery, while variable cost on the other hand is cost which varies with the level of output

Economics Paper 2, WASSCE (PC, 2ND) 2018

Question 1