Table 2 below show the unit prices and quantities of hats produced by a firm Study it and answer the questions that follows Quantity Unit Price (S) Total Re...
Question 1 Report
Table 2 below show the unit prices and quantities of hats produced by a firm
Study it and answer the questions that follows
| Quantity | Unit Price (S) | Total Revenue (S) | Marginal Revenue (S) | Average Revenue (S) |
| 10 | 180 | 1800 | - | 180 |
| 20 | 150 | 3000 | 120 | X |
| 30 | U | 3600 | 60 | 120 |
| 40 | 100 | V | W | Y |
| 50 | 80 | 4000 | 0 | 80 |
| 60 | 60 | 3600 | 40 | 60 |
a) Compute the values of U, V, W, X and Y
b) In what type of market is the firm operating? Explain your answer
c) If the firm's marginal cost is $60.00 at all levels of output, at what level of output will it be in equilibrium? Explain your answer
d) If a total cos of $600,00 is incurred when 50 units of hats are produced. Determine the margin of profit or loss made.
e) What is another name for marginal cost?
Answer Details
(a) The missing values (using \(AR = \dfrac{TR}{Q}\), \(TR = P\times Q\), \(MR = \dfrac{\Delta TR}{\Delta Q}\))
- X = AR at Q = 20 = \(\dfrac{3000}{20} = \$150\)
- U = Unit price at Q = 30 = AR = \(\dfrac{3600}{30} = \$120\)
- V = TR at Q = 40 = \(100\times 40 = \$4000\)
- W = MR at Q = 40 = \(\dfrac{4000-3600}{40-30} = \dfrac{400}{10} = \$40\)
- Y = AR at Q = 40 = \(\dfrac{4000}{40} = \$100\)
| Quantity | Price/AR ($) | TR ($) | MR ($) |
|---|---|---|---|
| 20 | 150 (X) | 3000 | 120 |
| 30 | 120 (U) | 3600 | 60 |
| 40 | 100 (Y) | 4000 (V) | 40 (W) |
(b) Type of market
The firm operates in an imperfect market (monopoly). The unit price (average revenue) falls as output rises, and marginal revenue is below average revenue at every level. A firm facing a downward-sloping demand/AR curve with MR < AR is a price-searcher, not a perfectly competitive price-taker.
(c) Equilibrium output
A firm is in equilibrium where \(MR = MC\). Since \(MC = \$60\) at all outputs, equilibrium is where \(MR = \$60\), which occurs at Q = 30 units. Producing beyond this, MR falls below MC, so additional units subtract from profit.
(d) Margin of profit or loss at 50 units
At 50 units, \(TR = \$4000\). Taking the stated total cost as \$6,000:
\[\text{Profit} = TR - TC = 4000 - 6000 = -\$2000\]
The firm makes a loss of \$2,000.
(e) Another name for marginal cost
Incremental cost (the extra/additional cost of producing one more unit).
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