a. The equilibrium position of a firm is illustrated in the diagram above. Study the diagram and answer the questions that follows:
i. equilibrium output level
ii. equilibrium price
b. At equilibrium output level, calculate the firm’s
i. total cost
ii. total revenue
iii. total profit
c. At equilibrium output level, calculate the firm’s
Is the firm operating is the long-run or short-run? Explain your answer.
d. At equilibrium output level, calculate the firm’s
i. What type of market is the firm operating in?
ii. List three features of the market type identified in d(i)
Explanation
ai. The equilibrium output is 50 units
aii. The equilibrium price is $40
bi.
Total cost = Ac x Q
= 30 x 50
= $150
bii.
Total revenue = price x quantity
= 40 x 50
= $200
biii.
π = Total revenue - Total cost
= 200 - 150
= $50
c. The firm is operating in the short run. The firm is in short run because the firm is making abnormal or excess profit.
di. The market is a perfect competition market
dii.
The market is a perfect competition market, therefore, the features are:
- there is free entry and exit
- there is perfect knowledge about the market
- there is no preferential treatment
- the goods are homogenous
- there are large number of buyers and sellers