ADVANCED LEVEL IN ECONOMICS
FIRST YEAR
Market Structures
Consider the following table which represents a firm’s quantity of sales (Q) price per unit (P) and cost
per unit or average cost (AC).
Q
1
2
3
4
5
6
7
8
9
10
P
40
40
40
40
40
40
40
40
40
40
AC
43
37
33
31
30
31
33
37
43
50
a) What type of market structure might the firm fit into? Give reasons for your answer. (7 marks)
b) Is the firm operating in the short run or in the long run? Why? (6 marks)
c) Calculate the total costs (TC) and the total revenue (TR) of the firm and calculate the level of
output that maximizes total profit (TP). (6 marks)
d) Based on your answer to (c) what is likely to happen to the profits of the firm in the long run?
Why? (6 marks)
e) Assume that the firm is given a sole license to operate in the market, thereby eliminating all
competitors, how is the price schedule of the firm likely to change? (8 marks)
(September 2010)