Question

Question 1

The table below shows the cost and revenue information of a firm.

(a) Complete the table above.

Output (units)	Price (RM)	Total Cost (RM)	Total revenue (RM)	Marginal Cost (RM)	Marginal Revenue (RM)
0	14	10
1	12	14
2	10	22
3	8	34
4	6	48
5	4	64
6	2	82

(b) Determine the price and output at equilibrium.

[6 marks]

(c) Calculate the profit or loss at equilibrium.

[4 marks]

(d) Is this firm in the short-run or long-run? Explain your answer.

[5 marks]

(e) To what type of market structure does this firm belong? Why do you say so?

[6 marks]

Answer 1

Output (units)	Price (RM)	Total Cost (RM)	Total revenue (RM)	Marginal Cost (RM)	Marginal Revenue (RM)
0	14	10	0
1	12	14	12	4	12
2	10	22	20	8	8
3	8	34	24	12	4
4	6	48	24	14	0
5	4	64	20	16	-4
6	2	82	12	18	-8

1. Total Revenue = Price*Output
2. Marginal cost is the change in total cost when output changes by 1 unit
3. Marginal revenue is the change in total revenue when output changes by 1 unit

b. The profit maximizing condition is MR = MC

i.e. MR = MC = 8.
The equilibrium price is $10 per unit and equilibrium quantity is 2 units.

c. When output = 2 units, Total revenue = 20 and total cost = 22
Profit = Total revenue - Total cost = 20 - 22 = -2

d. It appears that this firm is in short run. We say that because the firm is incurring a loss at all output levels yet it continues to stay in the market and produce some output.

e. The firm belongs to an imperfect market structure such as monopoly or monopolistic competition. We can say that since the firm is not a price taker but faces a downward sloping demand curve.