Question 1
The following table shows the demand and cost schedules for a monopolistic
competitive firm.
Quantity
Price (RM)
Total Cost (RM)
3
11
10
4
10
12
5
9
13
6
8
16
7
7
21
8
6
18
a)
Calculate the total revenue for the firm at each level of Quantity (Q). (3
marks)
The calculation of Total Revenue = Price x Quantity
Hence, the total revenue of the firm at each level of Quantity is as follow:
Quantity
Price (RM)
Total Revenue (RM) = Price x Quantity
3
11
33
4
10
40
5
9
45
6
8
48
7
7
49
8
6
48
b)
Calculate the profit for the firm at each level of Quantity (Q).(3 marks)
The calculation of Profit = Total Revenue – Total Cost
Total Revenue table is obtained from Q1.a. and the total cost of each level of
Quantity(Q) has been given.
Hence, the Profit of the firm at each level of Quantity (Q) is as follow:
Quantity
Price
(RM)
Total Revenue
(RM)
Total Cost
(RM)
Profit (RM) = Total
Revenue – Total Cost
3
11
33
10
23
4
10
40
12
28
5
9
45
13
32
6
8
48
16
32
7
7
49
21
28
8
6
48
18
30
c)
Determine the maximum profit for the firm based on your calculation in part
(ii).(3 marks)
Based on calculation in part (ii), the maximum profit of the firm is RM 32.
d)
Determine the level of output that maximizes profit.(3 marks)
To obtain level of output that maximizes profit, the firm should be producing
its quantity level at marginal revenue = marginal cost.
The calculation of marginal revenue = change of total revenue divided by
change of quantity of output = ∆𝑇𝑅
∆𝑄
The calculation of marginal cost = change of total cost divided by change of
quantity of output = ∆𝑇𝐶
∆𝑄
Quantity
Price
Total
Revenue
Total
Cost
Marginal
Revenue
Marginal
Cost
