Question 2
The cost and output schedule of a firm is shown in the table below.
Output (kg) |
0 |
15 |
35 |
60 |
85 |
Variable cost ($) |
0 |
30 |
55 |
75 |
90 |
Total cost |
15 |
45 |
70 |
90 |
105 |
Total revenue ($) |
0 |
30 |
70 |
120 |
170 |
(a) Using the data in the table, at each level of output, calculate the firm’s:
(I)marginal revenue;
(II)marginal cost.
(B)At what output level did the firm:
(i)break-even;
(ii)make the highest profit;
(iii)attain equilibrium?
(iv)Identify the market structure in which the firm operates.
This is the alternative data response question to question (1) and was attempted by most of the candidates, majority of whom scored average marks. The question required candidates to calculate a firm’s marginal revenue and cost in the (a) part of the question, determine the level of output where the broke-even, made the highest profit and attained equilibrium in the (b) part and identify the market structure the firm is operating in the (c) of the question. Most of the candidates could calculate the marginal cost and revenue of the firm and determine the output where the firm recorded the highest profit but had no idea of the concept of break-even point and could not determine the market structure the firm is operating. This made majority of them to lose valuable marks.
The candidates were expected to provide the following answers to obtain the maximum marks.
At output level 85, MC =105 - 90 = 15 = $ 0.60
85 - 60 25
(b)(i) The firm’s break-even point is at output level 35.
(ii) The firm makes the highest profit at output level 85.
(iii) The firm attains equilibrium at output level 15.
(c) The firm is operating in perfectly competitive market.