In a perfectly competitive market the prevailing price of a product is ₦50 per unit. A firm that is considering entering the market has total cost TC = 2,000 + 10Q + 0.5Q², where Q is output.
(a) If the firm behaves as a price taker, should it produce? Show the profit (or loss) it would earn at the competitive output level.
(b) If the firm instead decides to become a monopoly and faces the market demand curve P = 120 - 0.5Q, determine the profit‑maximising output, the monopoly price, and the resulting profit.
State all numerical answers in naira.

Question

In a perfectly competitive market the prevailing price of a product is ₦50 per unit. A firm that is considering entering the market has total cost TC = 2,000 + 10Q + 0.5Q², where Q is output. 
(a) If the firm behaves as a price taker, should it produce? Show the profit (or loss) it would earn at the competitive output level.
(b) If the firm instead decides to become a monopoly and faces the market demand curve P = 120 - 0.5Q, determine the profit‑maximising output, the monopoly price, and the resulting profit.
State all numerical answers in naira.

Accepted Answer

As price taker: loss of ₦1,200. As monopoly: output 55 units, price ₦92.5, profit ₦1,025.

Waec Model Questions Vol1 2020 Economics Question 40

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