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?
Explanation
a) U = TR | Q = \(\frac {$3600} {$30}\) = $120 V = TR40 = $100 x 40 = $4000 W = MR40 = \(\frac {TR40 - TR30} {40 - 30}\) = \(\frac {$4000 - $3600} {10}\) = \(\frac {$400} {10}\) = $40 X = AR20 \(\frac {TR40} {20}\) = \(\frac {$3000} {20}\) = $150 Y = AR40 \(\frac {TR40} {40}\) = \(\frac {$4000} {40}\) = $100 Total revenue before price fall = area of OP\(_{1}\) TQ\(_{1}\) Total revenue after price fall = area of OP\(_{2}\) RQ\(_{2}\)
b) The firm is operating in a monopolistic competition / an imperfect market. This is because at each output level, the price is greater than marginal revenue OR the seller has to reduce price in order to sell more. The price is not fixed. c) The firm will be in equilibrium at output 30. At that point MR = MC = $60 d) Profit 50 = TR50 - TC50 $4000 - $600 $3400 e) Increment cost / Differential cost
