Economics Paper 2, Aug./Sept. 2020

Question 1

Table 1 below shows the total cost and total revenue of a maize farmer. Use the information in the table to answer the questions that follow.

Output

(in bags)

Total Cost

(TC) $

Total Revenue

($)

1
2
3
4
5
6

6
10
10
12
10
9

4
8
12
16
20
24

Table 1

(a) For output levels 3 and 6, calculate:

average revenue (AR);
marginal revenue (MR);
marginal cost (MC).

(b)        (i)         What is the price of a bag of maize?
(ii)        Calculate the farmer’s profit or loss at output levels 2 and 5.
(c)        In what market structure is the farmer operating? Explain your answer.

Observation

This is one of the data response questions and it was attempted by many candidates, most of whom scored above average marks. The question required the candidates to calculate average revenue, marginal revenue and marginal cost at output levels 3 and 6 in the (a) part, determine the price of a bag of maize and calculate the farmer’s profit or loss at output levels 2 and 5 in the (b) part, identify with an explanation the market structure in which the farmer is operating in the (c) part of the question. Most of the candidates who attempted this question were able to calculate average revenue, marginal revenue and marginal cost at output levels 3 and 6 in the (a) part, few of them were unable to estimate the price of a bag of maize and calculate the profit or loss at output levels 2 and 5 in the (b) part. Few of the candidates were also unable to identify the market structure in which the farmer was operating in the (c) part; hence they could not obtain the maximum mark.
The candidates were expected to provide the following answers to score higher marks.

(i)    Price = AR = $4
(ii)   At output level 2, Profit = TR₂ -TC₂= $8 –$10 = -$2 (loss)
At output level 5, Profit = TR₅ -TC₅ = $20 – $10 = $10 (profit)
The farmer operates in a perfectly competitive market. This is because price/AR equals MR at $4.

Economics Paper 2, WASSCE (PC, 2ND) 2020

Question 1