Question 2.docx - Question 1 a Total Revenue P Q Marginal Cost TC Q Marginal Revenue TR Q Outputs(Units Price(RM Total Cost(RM 30 Total Revenue(RM

Question 2.docx - Question 1 a Total Revenue P Q Marginal...

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Question 1 a) Total Revenue ¿ P×Q Marginal Cost ¿ ∆TC ÷∆Q Marginal Revenue ¿ ∆TR÷∆Q Outputs (Units) Price (RM) Total Cost (RM) Total Revenue (RM) Marginal Cost (RM) Marginal Revenue (RM) 0 20 30 - - - 1 20 50 20 20 20 2 20 60 40 10 20 3 20 80 60 20 20 4 20 110 80 30 20 5 20 150 100 40 20 6 20 200 120 50 20 (9 marks) b) P = MR = MC Equilibrium Price – RM 20 Equilibrium Output – 3 (6 marks) c) Total Revenue – Total Cost = Profit / Loss RM 60 – RM80 = - RM20 Loss RM 20 (4 marks)
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d) This firm is in short-run. In short-run, it has fixed costs and also variable costs while for long- run, it only has variable costs. A fixed cost is an input that quantity cannot be changed as output changes in short-run. Even though the firm have no output, there will still have fixed cost in the short-run. Therefore, for this firm, when the quantity is 0, there is still has a amount for total costs (RM 30). (5 marks) e) This is a perfect competitive firm. This is because P = MC = MR. Producing a good until P = MC = MR ensures that all units of the goods are produced that are greater value to buyers than the alternative goods that might have been produced. Stated differently, a firm that produces the quantity of output at which P = MC = MR is actually maximizing the satisfaction of consumers as it is producing the good at the quantity most wanted by consumers. (6 marks)
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Part B Question 1 a) Short-run is a period in which some inputs are fixed. The sum of total fixed cost (TFC) and total variable cost (TVC) is total cost (TC). In short-run, these variables do not always adjust due to the condensed time period. Short-run shutdown is designed for temporary, when a firm is shutdown for a short-run, it still have to pay for the fixed costs and cannot leave from the industry. Long-run is a period in which all inputs can be varied and no inputs are fixed. Consequently, the firm has greater flexibility in long-run than in short-run. For long-run, there are no fixed costs (FC), so the variable costs (VC) are total costs (TC). In long-run, the general price level, contractual wages, and expectations adjust fully to the state of the economy. Exiting an industry is a long-run decision. If market conditions do not improve a firm can exit from the market. By exiting the industry, the firm earn no revenue but incurs no fixed or variable costs. (6 marks) b) Economies of scale are the benefits in terms of lower costs gained from producing on a larger quantity. Example, a larger firm will be able to raise finance easier and on more favourable terms than a smaller firm because of the reputation, so the perceived risk of lending to a larger firm is less.
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