Economics Paper 2, WASSCE (SC), 2023

Question 1

The equilibrium position of a firm is illustrated in the diagram below. Study the diagram and answer the questions that follow.

image showing date for national income

(a)       Determine the firm’s:
(i)      equilibrium output level;
(ii)     equilibrium price.

(b)        At the equilibrium output level, calculate the firm’s:
(i)      total cost;
(ii)     total revenue;
(iii)    total profit.

(d) (i) What type of market is the firm operating in?
(ii) List three features of the market type identified in (d)(i).

Observation

This is one of the data response questions and most of the candidates who attempted it scored above average marks. Most of the candidates who attempted the (a) part of the question were able to identify the equilibrium output level and price correctly, however, a few candidates wrongly stated the output level and price combination associated with the point where MC = ATC i.e. 40 units and $25 instead of the combination associated with the point where MC = MR. Few candidates also omitted the unit of measurement when providing answers to the (b) part e.g. total cost expressed in dollars ($). Some candidates were also unable to identify the period in which the firm was operating based on the type of profit earned in the (c) part.

The candidates were expected to provide the following answers to score higher marks.

(a)   (i)        Equilibrium output level = 50 units
(ii)        Equilibrium price = $ 40.00

(b)   (i)         Total cost (TC) = AC × Q
= $ 30 × 50
= $ 1500

(ii)        Total revenue (TR) = AR × Q
= $ 40 × 50
= $ 2000

(iii)       Profit = TR – TC
= $ (2000 – 1500)
= $ 500
                     OR
                   Profit = (AR – AC) × Q
= $ (40 – 30) × 50
                     or
= $ 10 × 50
= $ 500

(c)               The firm is operating in the short-run because it is operating in a perfect market and it                made abnormal/super normal profit, where its price > average cost and average cost <                   average revenue.

(d) (i)         Perfectly competitive market/perfect market.

(ii)        - There are many buyers and sellers.
- There is free entry and exit into and from the market.
- Sellers are price takers/there is one market clearing price/there is no government                                  intervention.
- There is perfect knowledge about the market.
- There are no extra transport costs incurred.
- Goods sold are homogeneous.
- There is no preferential treatment.