Question 1
Table 1 below shows the total cost and total revenue of a maize farmer. Use the information in the table to answer the questions that follow.
(in bags) |
Total Cost (TC) $ |
Total Revenue ($) |
1 |
6 |
4 |
Table 1
(a) For output levels 3 and 6, calculate:
- average revenue (AR);
- marginal revenue (MR);
- marginal cost (MC).
(b) (i) What is the price of a bag of maize?
(ii) Calculate the farmer’s profit or loss at output levels 2 and 5.
(c) In what market structure is the farmer operating? Explain your answer.
The candidates were expected to provide the following answers to score higher marks.
- (i) Price = AR = $4
(ii) At output level 2, Profit = TR2 -TC2= $8 –$10 = -$2 (loss)
At output level 5, Profit = TR5 -TC5 = $20 – $10 = $10 (profit)
- The farmer operates in a perfectly competitive market. This is because price/AR equals MR at $4.