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Economics (Eco 415) Assignment 3 QAMA 2 (202041)

This document contains an economics assignment that discusses different types of market structures and profit levels. It includes three figures that illustrate: [1] a monopoly earning supernormal profit where price exceeds average cost, [2] a perfectly competitive firm experiencing subnormal losses where price is below average cost, and [3] a competitive firm achieving normal profit where price equals average cost.

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Ummu Khashia
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83 views5 pages

Economics (Eco 415) Assignment 3 QAMA 2 (202041)

This document contains an economics assignment that discusses different types of market structures and profit levels. It includes three figures that illustrate: [1] a monopoly earning supernormal profit where price exceeds average cost, [2] a perfectly competitive firm experiencing subnormal losses where price is below average cost, and [3] a competitive firm achieving normal profit where price equals average cost.

Uploaded by

Ummu Khashia
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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ECONOMICS (ECO 415)

Assignment 3

QAMA 2 (202041)

PREPARED BY: SHERIL AIDA BINTI SULAINAN/2015727623

PREPARED FOR: Dr NURHANI BINTI HJ ABA IBRAHIM

SUBMISSION DATE: 06/01/2021


Assignment 3

ECO 415

Dec 2018

Question 2b

i. Type of market structure: Monopoly

Characteristics: 1. Single seller 2. Produces unique products with no close substitutes.

ii. Curves label:

i. Marginal cost/MC

ii. Average Cost/AC

iii. Average Revenue/AR equal to Demand/D

iv. Marginal Revenue/MR

iii. At profit maximizing level,

Firm’s quantity : 120

Price level : $ 11

iv. TR = $ 11 x 120 TC = $ 11 x 120 Tπ = TR - TC

= $ 1320 = $ 1320 = $ 1320 - $ 1320

=$0

= (normal profit)
Question 3a

In figure A, a perfectly competitive in short run earns supernormal profit as shown in the shaded
area ACDB because AR exceeds AC. Here we can se that the AR point C is higher than the Ac
at point D. The firm’s profit-maximizing price is attained at A and the profit-maximizing output is
at Q. Supernormal profit is earned when AR>AC and TR>TC at the equilibrium level of MR=MC.

TR=RM 20 x 20

= RM 400

TC= RM 10 x 20

= RM 200

Tπ=TR-TC

= RM 400 – RM 200

=RM 200

=(supernormal profit)
B

Subnormal profit is shown in figure B. The profit-maximizing output is obtained at Q and the
profit maximizing price is at A when MR-MC. The firm is said to experience subnormal profit or
losses because the AR at point C is less than the AC at point D. The loss shown in the shaded
area ABDC. Subnormal profit is realized when AR<AC and TR<TC at the equilibrium level of
MR=MC.

TR= RM 15x15

=RM 225

TC= RM 20x15

=RM 300

Tπ=TR-TC

=RM 225-RM300

= - RM 75 = (subnormal profit)
C

The last type of profit is normal profit which is illustrated in figure C. At MR=MC, the profit-
maximizing output and price are achieved at points Q and A respectively. The AR=AC gives the
condition of normal profit or zero profit. Normal profit achieved when AR=AC and TR=TC at the
equilibrium level of MR=MC.

TR= RM 15 x 15

=RM 225

TC= RM 15 x 15

=RM 225

Tπ= TR-TC

= RM 225-RM 225

= RM 0

=(normal profit)

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