Market structure

1. You are offering a house cleaning service in your neighbourhood, where your fixed
cost is RM100 and your marginal cost is constant at RM10, per day. Below are your
cost and revenue function:

No. of Price Total Marginal Total Marginal

houses (P) Cost Cost Revenue Revenue
(Q) (RM) (TC) (MC) (TR) (MR)
(RM) (RM) (RM) RM
0 100
1 90
2 80
3 70
4 60
5 50
6 40
7 30
8 20
9 10

(a) How many houses would you clean in a day if you want to maximise your profit?
Justify your answer.
(b) What price would you charge?
(c) If you are the only one offering a house cleaning service in your neighbourhood;
briefly explain THREE (3) characteristics of the market structure that you
are operating in.

2. The cost schedule for a hawker selling soy bean milk is as follows:

Total Total Total Total Average Average Marginal

Product Fixed Variable Cost Cost (AC) Variable Cost (MC)
(Q) Cost Cost (RM) Cost (AVC)
(RM) (RM)
0 3.00
1 3.30
2 3.80
3 4.50
4 5.40
5 6.50
6 7.80
7 9.30
8 11.00
9 12.90
10 15.00

If the hawker above produces 100 units of output with an average total cost of
RM2.00 and average variable cost of RM1.97, calculate the total fixed cost is
incurred by the hawker.
3. Consider the following cost data for a perfectly competitive firm. The market
price for the product is RM6.00 per unit.

Quantity Total Total Marginal Marginal

Revenue Cost Revenue Cost (RM)
(RM) (RM) (RM)
1 5
2 8
3 12
4 17
5 23
6 30
7 38
8 47

i. What is the firm’s profit maximizing output level?

ii. Is the firm operating in the short run or long run?

4. Firms in monopolistic competitive industry practice product differentiation. With

example, elaborate on the concept of product differentiation.

5. The table below shows revenues and costs for a monopoly.

Quantity Price Total Total Marginal Marginal

(RM) Revenue Cost Revenue Cost
(RM) (RM) (RM) (RM)

0 150 100
1 138 150
2 125 184
3 113 208
4 100 227
5 88 250
6 78 278
7 63 318
8 50 366

a) What is the equilibrium output?

b) How much profit does the firm earn at equilibrium output?