Neco 2021 Economics Question 6

Practice essay / theory question 6 from the 2021 Neco Economics examination. This question covers Market Structures .

Neco 2021 Economics Essay / Theory
Topic: Market Structures
Question 6 NECO • 2021 • ECONOMICS • essay

A bakery that produces loaves of bread operates in two different market environments. 1. In a perfectly competitive market, the market price of a loaf is ₦500. The bakery’s total cost for producing Q loaves per month is given by TC = 50,000 + 200Q. 2. The bakery is granted an exclusive licence that makes it a monopoly. The market demand for loaves is described by the linear equation P = 800 – 0.2Q, where P is the price per loaf (in naira) and Q is the quantity demanded per month. The bakery’s marginal cost (MC) is constant at ₦300 per loaf. Assume the bakery can produce any whole number of loaves and that there are no other costs besides those captured in the cost functions above.

Question Parts

( a )
Calculate the profit the bakery would earn per month if it produced and sold 1,000 loaves in the perfectly competitive market.
( b )
For the monopoly situation: i. Determine the profit‑maximising quantity of loaves and the corresponding price. ii. Compute the monthly profit at that output. iii. Calculate the consumer surplus under monopoly. iv. Estimate the dead‑weight loss created by the monopoly compared with the competitive outcome.
( ) Find Q* and P* where MR = MC.
( ) Calculate profit = (P* – MC) × Q* – fixed cost (if any).
( ) Determine consumer surplus as the area of the triangle between the demand curve and the monopoly price.
( ) Find the dead‑weight loss as the loss in total surplus relative to the competitive equilibrium (price = MC).
( c )
Briefly discuss the welfare implications of moving from perfect competition to monopoly for both consumers and the bakery.

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About This Question

This is Neco 2021 Economics Question 6. It is one of the essay questions from the 2021 Neco Economics examination.

The question covers Market Structures .

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