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 Economics Paper 2, Nov/Dec. 2009
 Questions: 1 2 3 4 5 6 7 8 9 10 11 12 Main
Weakness/Remedies
Strength
Question 1

The graph below shows the fixed cost and total cost of a hypothetical firm.  Study the graph and answer the questions that follow.

(a)  Determine the following:

• Variable cost of the firm when its output is 2,4,6 and 8 units
• Average cost when output is 4, 6 and 8 units
• Marginal cost when output is 4 and 6 units

(b)  Use your answer in (a)(ii) to draw the average cost curve

(c) What is the average fixed cost at output levels 4, 6 and 8 units?

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Observation

Most of the candidates did not attempt this question.  The few that attempted it scored very low marks.  Generally, candidates found it difficult to interpret and compute values from the graph.  In order to score high marks in this question, candidates were expected to present their answers thus:

(a) i) Variable Cost  =  Total cost – fixed cost

At output 2 units  = \$140 -\$50 = \$90
‘     ‘      4 units  = \$220 -\$50 = \$170
‘     ‘      6 units  = \$290 -\$50 = \$240
‘     ‘      8 units  = \$350 -\$50 = \$300

(ii) Average Cost   =    TC
Q

At output 4 units  =   220      =   \$55
4

At output 6 units  =   290      =   \$48.33
6

At output 8 units  =   350      =   \$43.75
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(iii)      Marginal Cost        =          TCn  - TCn-1

At output 4 units \$220 -\$200 = \$20
At output 6 units \$290 -\$260 = \$30

OR

Marginal Cost      =     ΔTC
ΔQ

MC4      =   \$220 - \$200
4 – 3

=    \$20    =   \$20
1

MC6      =   \$290 - \$260     =   \$30    =   \$30
6 – 5                   1

Average fixed cost   =   FC      OR    FC
Output            Q

At output 4 units  =  \$50     =    \$12.5
4

At output 6 units  =  \$50     =    \$8.33
6

At output 8 units  =  \$50     =    \$6.25
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