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Economics Paper 2, Nov/Dec. 2007  
Questions: 1 2 3 4 5 6 7 8 9 10 11 Main





General Comments
Weakness/Remedies
Strength






















































Question 2


The table below relates to the cost schedule of a firm. Use the information provided to answer the questions that follow:

Output

TFC ($)

MC ($)

0

20

-

1

10

2

20

3

30

4

40




(a)        Calculate the total variable cost (TVC) and the total cost (TC) values for all the levels of output.
            (b)        Determine the total revenue (TR) for all the levels of output if
                        the unit price of the product is $30.
            (c)        At what output will the firm maximize profit?
            (d)        (i)         Identify the market structure in which the firm is operating.
                        (ii)        Explain your answer in (d) (i).
_____________________________________________________________________________________________________
OBSERVATION

The candidates were required to compute the cost and revenue values for all the levels of output at a given unit price. They were expected to apply their understanding of the concepts of costs, revenue and market structures to answer the questions.
A greater proportion of candidates avoided the question. They found it difficult determining the total variable cost (TVC) and total cost (TC) values for each level of output. They also had difficulty identifying the market structure in which the firm is operating. The few candidates who attempted this question performed poorly.
There is the possibility that the poor performance level stems from the poor handling of the related topic by teachers.

The TVC is equal to the sum of marginal costs up to that level of output i.e
TVC0 = 0
TVC1 = 0 + 10 = $10
TVC2 = 0 + 10 + 20 = $30
TVC3 = 0 + 10 + 20 + 30 = $60
TVC4 = 0 + 10 + 20 + 30 +40 = $100
Total cost is the total variable cost plus the total fixed cost i.e.
TC0 = 0 + 20 = $20
TC1 = 10 + 20 = $30
TC2 = 30 + 20 = $50
TC3 = 60 + 20 = $80
TC4 = 100 + 20 = $120

Total Revenue for each level of output is obtained by multiplying output by unit price i.e.
0 * $30 = $0
1 * $30 = $30
2 * $30 = $60
3 * $30 = $90
4 * $30 = $120

The market structure in which the firm is operating is a perfect market. This is because the same price is charged in the market

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