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Table 2 below indicate total production and cost (RM) for a firm
Table 2 below indicate total production and cost (RM) for a firm. Answer the following questions based on the table below (5) (6) (2) Total Total Product (0) Variable cost 0 (3) Total cost AFC AVC ATC ?? 40 0 55 2 4 5 75 90 110 135 170 220 290 0 40.00 20.00 1333 10.00 8.00 6.67 5.71 5.00 0 55 00 37.50 30.00 27.50 27.00 28.33 31.43 38.25 0 9500 57.50 43.33 37.50 35.00 35.00 3714 41.25 7 A. Calculate Total Cost (TC) and Marginal Cost (MC) for each level of output 8 Marks Determine the profit maximising output for this firm using marginal approach it the price is RM50 2. Marks) C Compute tota profit or last of this format profit maximizing output (2 Marks) Determine whether this firm will grouce in short run if the prios falls to RM20 2 Narks) E. Based on the information given above seermine the type market structure of this firm 11 Mark
Expert Solution
A) FC = Total cost at output level of 0
Fixed Cost + Variable Cost = Total Cost
Marginal Cost = Additional cost from extra unit sold
AFC = FC / Quantity
AVC = VC / Quantity
ATC = AFC + AVC
Total Revenue = Price * Total Product
Marginal Revenue = Additional Revenue from extra unit sold
| Total Product | Total Variable Cost | Fixed Cost | Total Cost | AFC | AVC | ATC | MC |
| 0 | 0 | 40 | 40 | - | - | - | - |
| 1 | 55 | 40 | 95 | 40.0 | 55.0 | 95.0 | 55 |
| 2 | 75 | 40 | 115 | 20.0 | 37.5 | 57.5 | 20 |
| 3 | 90 | 40 | 130 | 13.3 | 30.0 | 43.3 | 15 |
| 4 | 110 | 40 | 150 | 10.0 | 27.5 | 37.5 | 20 |
| 5 | 135 | 40 | 175 | 8.0 | 27.0 | 35.0 | 25 |
| 6 | 170 | 40 | 210 | 6.7 | 28.3 | 35.0 | 35 |
| 7 | 220 | 40 | 260 | 5.7 | 31.4 | 37.1 | 50 |
| 8 | 290 | 40 | 330 | 5.0 | 36.3 | 41.3 | 70 |
B)
| Total Product | Total Variable Cost | Fixed Cost | Total Cost | AFC | AVC | ATC | MC | Total Revenue | Marginal Revenue | Profit |
| 0 | 0 | 40 | 40 | - | - | - | - | 0 | - | -40 |
| 1 | 55 | 40 | 95 | 40.0 | 55.0 | 95.0 | 55 | 50 | 50 | -45 |
| 2 | 75 | 40 | 115 | 20.0 | 37.5 | 57.5 | 20 | 100 | 50 | -15 |
| 3 | 90 | 40 | 130 | 13.3 | 30.0 | 43.3 | 15 | 150 | 50 | 20 |
| 4 | 110 | 40 | 150 | 10.0 | 27.5 | 37.5 | 20 | 200 | 50 | 50 |
| 5 | 135 | 40 | 175 | 8.0 | 27.0 | 35.0 | 25 | 250 | 50 | 75 |
| 6 | 170 | 40 | 210 | 6.7 | 28.3 | 35.0 | 35 | 300 | 50 | 90 |
| 7 | 220 | 40 | 260 | 5.7 | 31.4 | 37.1 | 50 | 350 | 50 | 90 |
| 8 | 290 | 40 | 330 | 5.0 | 36.3 | 41.3 | 70 | 400 | 50 | 70 |
To maximize profit, firm produce at a point when MR = MC, thus they produce 7 units of output.
C) At this level of output, profit is 90.
D)
| Total Product | Total Variable Cost | Fixed Cost | Total Cost | AFC | AVC | ATC | MC | Total Revenue | Marginal Revenue | Profit |
| 0 | 0 | 40 | 40 | - | - | - | - | 0 | - | -40 |
| 1 | 55 | 40 | 95 | 40.0 | 55.0 | 95.0 | 55 | 20 | 20 | -75 |
| 2 | 75 | 40 | 115 | 20.0 | 37.5 | 57.5 | 20 | 40 | 20 | -75 |
| 3 | 90 | 40 | 130 | 13.3 | 30.0 | 43.3 | 15 | 60 | 20 | -70 |
| 4 | 110 | 40 | 150 | 10.0 | 27.5 | 37.5 | 20 | 80 | 20 | -70 |
| 5 | 135 | 40 | 175 | 8.0 | 27.0 | 35.0 | 25 | 100 | 20 | -75 |
| 6 | 170 | 40 | 210 | 6.7 | 28.3 | 35.0 | 35 | 120 | 20 | -90 |
| 7 | 220 | 40 | 260 | 5.7 | 31.4 | 37.1 | 50 | 140 | 20 | -120 |
| 8 | 290 | 40 | 330 | 5.0 | 36.3 | 41.3 | 70 | 160 | 20 | -170 |
If price falls to 20, producer will operate at a point when MR = MC = 20.
As loss occurs at this output level, producer will not produce at this price level.
E) This must be perfectly competitive market as marginal revenue is constant at all level of output while in monopoly marginal revenue remains lower than its price as they sale additional unit at lower price to maximize profit.
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