Study the graph below and answer the questions that follow - NSC Economics - Question 2 - 2023 - Paper 2
Question 2
Study the graph below and answer the questions that follow.
PERFECT MARKET
2.2.1 Identify the curve that represents the supply curve in t... show full transcript
Worked Solution & Example Answer:Study the graph below and answer the questions that follow - NSC Economics - Question 2 - 2023 - Paper 2
Step 1
Identify the curve that represents the supply curve in the graph above.
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Answer
The supply curve in a perfect market is represented by the Marginal Cost (MC) curve, as it shows the minimum price at which a product will be offered for sale. In this graph, it is the section of the curve that is above the Average Variable Cost (AVC).
Step 2
What quantity should the firm produce in order to make a normal profit?
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Answer
To make a normal profit, the firm should produce at the quantity where Average Revenue (AR) equals Average Cost (AC). According to the graph, this occurs at a quantity of 40 units.
Step 3
Briefly describe the term marginal revenue.
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Answer
Marginal revenue is the additional income earned from selling one more unit of a product. It is calculated as the change in total revenue divided by the change in quantity sold. Mathematically, it can be expressed as:
MR=ΔQΔTR
Step 4
Why would the producer be reluctant (unwilling) to produce 30 units or less?
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Answer
At a quantity of 30 units, the producer's total revenue may not cover all variable costs. If the average revenue at that quantity is less than the average variable cost (AVC), the firm would incur losses, making it unsustainable to produce at that level.
Step 5
Use the graph above to calculate the total revenue when the price is R25. Show ALL calculations, including the formula.
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Answer
Total Revenue (TR) can be calculated using the formula:
TR=Price×Quantity
Given the price is R25, and from the graph, at this price, the quantity is 50 units:
