This economics question tests your understanding of economic models and analysis. The step-by-step answer below applies the relevant framework and explains the reasoning.
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Here are the solutions for Question 1 and Question 2. Question 1: Equilibrium price and equilibrium quantity: Equilibrium occurs where Quantity Demanded equals Quantity Supplied. From the table: At a Price of N300, Quantity Demanded is 60 units and Quantity Supplied is 60 units. Therefore, the equilibrium price is N300 and the equilibrium quantity is 60 units. Equilibrium Price: N300, Equilibrium Quantity: 60 units New quantity demanded and supplied at a minimum price of N300: If the government imposes a minimum price of N300, the market price will be N300. At Price = N300: Quantity Demanded = 60 units Quantity Supplied = 60 units Quantity Demanded: 60 units, Quantity Supplied: 60 units Resulting surplus or shortage: Surplus or Shortage = Quantity Supplied - Quantity Demanded Surplus or Shortage = 60 units - 60 units = 0 units There is no surplus or shortage; the market remains at equilibrium. No surplus or shortage (0 units) Two consequences of fixing a price above the equilibrium: 1. Surplus: When a price is fixed above the equilibrium (a price floor), the quantity supplied will exceed the quantity demanded, leading to an unsold surplus of the product in the market. 2. Inefficiency and Resource Misallocation: Producers are encouraged to produce more at the higher price, but consumers are unwilling to buy that much. This leads to an inefficient allocation of resources, as resources are used to produce goods that are not sold, and it can also lead to reduced consumer welfare due to higher prices. Question 2: Average Variable Cost (AVC) for all levels of output: The formula for Average Variable Cost (AVC) is AVC = Total Variable Cost (TVC)Output (Q). | Output (Q) | Total Variable Cost (TVC) | AVC (N) | | :--------- | :------------------------ | :------ | | 0 | 0 | - | | 1 | 30 | 30 | | 2 | 50 | 25 | | 3 | 80 | 26.67 | | 4 | 100 | 25 | l AVC at Q=1: N30 \\ AVC at Q=2: N25 \\ AVC at Q=3: N26.67 \\ AVC at Q=4: N25 Marginal Cost (MC) of producing the 4th unit: The formula for Marginal Cost (MC) is MC = Total Cost at Q - Total Cost at Q-1. MC of 4th unit = Total Cost at Q=4 - Total Cost at Q=3 MC of 4th unit = N220 - N180 = N40 Marginal Cost of 4th unit: N40 Profit or loss at 4 units if the price per unit is N60: Total Revenue (TR) = Price × Quantity TR at 4 units = N60 × 4 = N240 Total Cost (TC) at 4 units = N220 (from the table) Profit/Loss = Total Revenue - Total Cost Profit/Loss = N240 - N220 = N20 Profit at 4 units: N20 Definition of "Sunk Cost": A sunk cost is a cost that has already been incurred and cannot be recovered. It is irrelevant to future business decisions because it will not change regardless of the choice made. Last free one today — make it count tomorrow, or type /upgrade for unlimited.