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...

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 = \(\dfrac{4000}{40} = \$100\)

(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).