ECO202: The Following Table Shows the total cost Incurred by a Firm in the Short run The firm is Able to sell any Amount of its Output at the Price of $10 Per Unit: Economic Ideas and Models for Business Assignment, SUSS, Singapore

Question 1

The following table shows the total cost incurred by a firm in the short run. The firm is able to sell any amount of its output at the price of $10 per unit.

a. Expand the table and calculate the fixed cost, the variable cost, the average fixed cost, the average variable cost, the average total cost and the marginal cost for all the output. Comment on the relationships among the various costs (i.e., you should consider four (4) relationships).

Explain the importance of marginal cost and average total cost in making business decisions.

b. What is the quantity that the firm should produce? Compute the profit or loss at this quantity.

(c) If the market that the firm operates in is perfectly competitive, examine the market structure and explain what will happen to the firm in the long run.

Question 2

Consider a monopolist with a demand equation P = 60 – 2Q, where P is the price in dollars and Q is the quantity. The monopolist is able to produce the output with a constant marginal cost of $20 which equals to the average total cost. Assume that there is no fixed cost.

(a) If the monopolist practices single pricing, determine the price, quantity, profit, consumer surplus and producer surplus in this market with the aid of a suitable diagram. Appraise the efficiency in this market. (15 marks)

(b) If the monopolist were to practise perfect price discrimination, determine the quantity, profit, consumer surplus and producer surplus of the monopolist. Appraise the efficiency in this market.

(c) Consumers and society are always worse off in a monopolised market compared to a perfectly competitive market. Do you agree? Examine the two (2) market structures and explain with the help of a suitable market diagram.