THE SCOPE OF ECONOMICS

What is Economics?

Economics is a social science which studies human behavior in relationship

between ends and scarce means which have alternative uses. This is the most
acceptable definition by Professor Lionel Robbins.

The definition above briefly states

i. Economics is a social science hence it studies human behavior

ii. Human wants are unlimited
iii. There are limited resources to satisfy the unlimited wants
iv. Scarce resources are capable of being put to alternative uses.

BASIC CONCEPT

WANTS

This refers to goods and services which are desired for consumption (usage).
Goods include tangible commodities i.e. things we can see and touch examples
cars, books, cement, houses etc. while services refer to intangible commodities.
Want are also called ends or desire; they are those things one would like to have.
Human wants are so many that they are said to be insatiable.

RESOURCES

This refers to means, basic instruments with which human wants can be satisfied.
Resources include labor, land, capital and other means used for producing goods
and services. Resources are scarce or limited relative to wants.

SCARCITY

This refers to the limited supply of resources relative to demand. The resources
with which to satisfy our multitude wants are scarce.

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CHOICE

This involves the selection and satisfaction of the most pressing wants out of a
range of alternative. Since human wants are unlimited and resources available to
satisfy them are limited, choice is constantly made between alternative wants.

SCALE OF PREFERENCE

This refers to a list of unsatisfied wants of an individual, firm or government,

arranged in order of priority, starting from the most important to the least
important.

This helps in making rational choice and to maximize utility since it enables one to
choose their most pressing wants first.

The table below shows the scale of preference for Mr. Ojo

1. A bag of rice
2. 5kg of meat
3. 10 tubers of yam
4. A pair of shoe
5. A hat
6. A shirt
7. A pair of trousers
8. A carton of beer
9. A carton of milk
10. A bag of garri

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OPPORTUNITY COST
This is also known as a real cost or true cost. The concept of opportunity cost is
used to express cost in term of forgone or sacrificed alternatives
Because of scarcity of resources and unlimited wants, choice is constantly made.
For instance, if a student has only N500 and is faced with the choice between
buying new leather slippers and economic textbook, he cannot buy both if the
prices are N400 and N500 respectively. He has to buy the more pressing one and
forgo the other. If he buys the leather slippers, the opportunity cost or real cost to
him is the economic textbook.
BASIC ECONOMICS PROBLEM OF SOCIETY
The basic economic problems of society arise because of scarcity of resources; the
problems are:
i. What to produce
ii. How much to produce
iii. For whom to produce
WHAT TO PRODUCE
Firms, household and government are faced with the problem of deciding what
type of goods and services to produce for the society. In relation to this, a vital
question has to be answered what determines the allocation of productive resource
in an economy. If the scarce resources are used to produce one kind of good, they
would be less for the production of others.
The type of goods and services produced depends on the need of the society and
available human and material resources.
HOW MUCH TO PRODUCE
This problem has to do with what quantity should each type of good and service is
produce. The quantity to be produce depends on the quantity of each kind of good
and service to be produced and also depends on the availability of the productive

3
resources. The goods and services which are in high demand will be produced in
larger quantities provided they are sufficient resources to do so.
HOW TO PRODUCE
Society or producers have to decide on the method or technique to use to produce
the required goods and services. The problem arises if there is more than one way
in which it is technically possible to produce a commodity. It is possible to use
either more labor intensive or a more capital intensive technique to produce a given
quantity of output.
FOR WHOM TO PRODUCE
This has to do with the producer and the government thinking for the section of the
society for which they have to produce.

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THEORY OF PRODUCTION
Production involves the creation or making of something tangible e.g. making of
chairs, radio etc. but however, it is not restricted to manufacturing of goods.
Production involves the creation of utility i.e. creation of wealth in the form of
goods and provision of serviced capable of satisfying human wants.
Production therefore include the following
i. Changing the form of raw materials to semi-finished and finished products
e.g. using floor to make bread.
ii. Changing the location of goods in a geographical space e.g. changing or
transporting cement from cement factory to a wholesale or retail store for
sale.
iii. Changing the position of goods in time: this involves holding a stock of
goods and making them available when required e.g. storing building
materials for future use.
iv. Provision of direct services such as services of lawyer, teacher, doctor,
Quantity Surveyor, architect, builder etc.
SYSTEM OF PRODUCTION
1. Primary production: This is carried out by primary industry/occupation
which involves the extraction of raw material example mining, agriculture
(crop farming, forestry) etc.
2. Secondary production: carried out by secondary industries/occupation
which involves conversion of extracted raw material into finished or semi-
finished goods, example conservation of limestone into cement.
3. Tertiary production: this is carried out by tertiary industries which concern
with the provision of general and direct services such as transportation,
banking, insurance, legal service etc.

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FACTORS OF PRODUCTION
The factors of production include
i. Land
ii. Labour
iii. Capital
LAND
Land also means soil or the solid part of the earth that support human activities and
form the basis of human settlement. In economics, it refers to all form of natural
resources with which a particular country has been endowed that is those resources
given freely by nature e.g. soil, farmland, mineral deposit, sunshine, fishing ground
etc.
Qualities of Land
i. Land is a free gift of nature
ii. Land is geographically immobile
iii. Land is fixed in supply
iv. Land varies in quantity and its value varies with location
v. Land is subject to the law of diminishing returns
Importance of Land and its Contribution to Economic Activities
i. Use for agricultural activities
ii. Provide areas for forestry and wildlife
iii. Important for mining and quarrying
iv. Land is important for production activities
v. Provide material for building and construction purpose.
LABOUR
This refers to human labour which may be physical or mental, skilled or unskilled,
scientific or artistic.

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Types of labour
i. Skilled labour: this is labour which has undergone a relatively long and
specialized type of training e.g. lawyer, architect, quantity surveyor etc.
ii. Semi-skilled labour: labour which has undergone some form of training but
the training not as specialized as that of skilled labour e.g. carpenter,
masons, drivers etc.
iii. Unskilled labor: labour which requires little of no training e.g. labourers,
porters and cleaners.
CAPITAL
Capital refers to all man-made productive assets. They are also referred to as
investment goods or producers’ goods. Examples of capital are machines, tools,
factory buildings, raw materials, fuel money etc.
Types of Capital
i. Fixed capital: this includes factory building, machinery, tools and office
equipment. They are durable investment which requires renewal only at
fairly long intervals
ii. Circulating or working capital: examples include raw materials, fuel,
money set aside for payment of wages and salaries etc.
THEORY OF DEMAND
Demand is referred to the quantity of a commodity consumers are willing and able
to buy at a particular price at a particular time.
Law of demand
The law of demand states that all things being equal the price of a commodity is
inversely proportional to the quantity demanded i.e. the higher the quantity
demanded the lower the price and vice versa.

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Demand Schedule
A demand schedule is a table which shows the magnitude of demand at various
prices. It shoes the different quantities of a commodity which would be brought at
various prices at a particular time.
PRICE PER TIN (NAIRA) QUANTITY DEMANDED
(NO. OF TINS PER MONTH)
2.50 10
2.00 20
1.50 25
1.00 30
0.50 50

The demand schedule above shows the relationship between the price of Tin and
quantity demanded. As the price decrease more milk are demanded.

Demand curve

2.5

1.5 Series1
1

0.5

0
10 20 30 40 50

Nature of demand curve

1. Price of a Commodity: if the price of a commodity falls, consumers of that

commodity will be left with more money which can be used to purchase
more unit of it. Example if the price of a tin of milk decrease from N1.00 TO
50k, then N1.00 can now purchase two tins of milk.
2. Substitution effect: if the price of a commodity falls, consumers may switch
from a commodity which they had been consuming to substitute whose price
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 has fallen. Example if the price of garri falls, many consumers may switch to
the consumption of garri and stop semovita. If the price increases, many
consumers will switch over to a close substitute.

ABNORMAL DEMAND CURVE

Price D

Quantity

An exceptional or abnormal demand curve may be one of the following

1. Luxury Goods: consumers use such commodities to show off and exhibit
their wealth. The higher their prices, the more valuable they think they are
and are therefore willing to buy more at high prices. Example gold,
diamond, luxurious cars etc.
2. Fear for future Price: if people fear that the prices will rise or fall in future. If
people fell that prices will increase in future, they will purchase more of the
commodity now, even if the prices are at present, and if they feel prices will
fall in near future, they will purchase less of the commodity now, even if the
prices are low at present.
3. Inferior goods or Giffen goods: These goods vary inversely with income.
Their demand decrease with an increase in income. Such good are bought
and consume in larger quantities by people of lower income. They do not
consume them because of perfect satisfaction but they cannot afford superior
substitute.
4. Rare commodities: Examples are antiques because people are willing to pay
at higher price to own a rare commodity.

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CHANGE IN QUANTITY DEMANDED AND CHANGE IN DEMAND
Change in Quantity Demand or movement along the demand curve
There are of two types
1. Increase in quantity demand
2. Decrease in quantity demand
Increase in Quantity Demand: the increase in quantity demand is caused by a
decrease in price of the commodity.

Price D

20k

10k

0 15 25 Quantity
INCREASE IN QUANTITY DEMAND

Decrease in Quantity Demand: the decrease in quantity demand is caused by an

increase in price of the commodity.
Price D

40k

20k

0 30 60 Quantity
DECREASE IN QUANTITY DEMAND

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Change in Demand or shift in demand curve
A change in demand is also of two types
1. Increase in demand
2. Decrease in demand
Increase in demand: an increase in demand shift the demand curve to the right
indicating at the old price more of the commodities will be bought an increase in
demand is caused by favorable factors affecting demand rather than price of the
commodity.

Price D2
D1

50k

D1 D2
0 20 60 Quantity
INCREASE IN DEMAND

Decrease in Demand: A decrease in demand shift the demand curve to the left
showing at the old price less of the commodities will be bought. Decrease in
demand is caused by favorable factors affecting demand rather than price of the
commodity.
Price D0
D1

40k

D1 D0
0 30 80 Quantity
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FACTORS AFFECTING DEMAND
1. Price of the commodity
2. Price of other commodities
3. Fashion and taste
4. Introduction of new commodities
5. Income of consumers
6. Weather conditions and seasons
7. Taxation on commodities
8. An expectation of future change in price
9. Advertisement
10.Population size.
PRICE ELASTICITY OF DEMAND
This is defined as the degree of responsiveness of quantity demanded to small
change in price of a commodity
Types of price elasticity of demand
1. Elastic demand: demand is said to be elastic if a small change in price leads
to a greater change in good demanded.
Price
D
P2
P1
D

0 Q1 Q2 Quantity

ELASTIC DEMAND

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2. Inelastic Demand: demand is said to be inelastic if a larger change in price
leads to a small of slight change in quantity demanded

Price D

P2

P1

0 Q1 Q2 Quantity
Inelastic demand

Decrease in Quantity Demand: the decrease in

3. Unity or unitary demand: demand is said to be unitary when a change in
price leads to an equal change in the quantity demanded
Price D

P2

P1

0 Q1 Q2 Quantity
UNITARY DEMAND

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4. Perfectly Elastic Demand: demand is said to be perfectly elastic when a
slight change in price of the commodity will lead to a stop in demand of that
commodity or good

Price

0 15 25 Quantity
PERFECTLY ELASTIC DEMAND
5. Perfectly Inelastic Demand or Zero Elastic Demand: demand is said to be
perfectly inelastic if the change in price has no effect on the quantity
demanded of the commodity.
Price

0 Q Quantity
PREFECTLY INELASTIC DEMAND

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The price of bread in 2002 was increased from N40 to N50 and quantity bought per
week by consumer from decrease from 160 to 80. The data is presented in a tble
below.
PRICE (N) QUANTITY DEMANDED
40 160
50 80
𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦
𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑦 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑 = × 100
𝑜𝑙𝑑 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦
160 − 80
𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑦 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑 = × 100
160
80
𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑦 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑 = × 100
160
= 50%
𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒
𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒 = × 100
𝑜𝑙𝑑 𝑝𝑟𝑖𝑐𝑒
50 − 40
𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑦 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑 = × 100
40
10
𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑦 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑 = × 100
40
= 25%

THEORY OF SUPPLY
Supply is defined as the quantity of that commodity which sellers are willing and
able to offer for sale at a particular price, at a particular period of time. If a farmer
produces 2000 yams but actually offers 1000 yams for sale at N200 each, the
supply of yam by this farmer is actually 1000 yams.
Law of Supply
The law of supply states that all things being equal, the higher the price of a
commodity the higher the quantity supplied and vice versa. i.e. supply is directly
proportional to price of a commodity.
Supply Schedule
PRICE PER PACKET (NAIRA) QUANTITY SUPPLIED

5 100
4 80
3 60
2 40
1 20

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Supply Curve

Abnormal (Exceptional Supply Curve)

1. Short run supply of agricultural product: in a short run if it not always easy
to increase the supply of agricultural products no matter the price. This is as
a result of the interval between planting and harvesting of crops such as
cocoa. S if the price of cocoa per ton rises, there is not much the producer of
coca can do to increase the supply of cocoa at present.
2. Long run supply of land: this refers to land resources such as mineral which
the quantity supplied increase in short run but at a long run cannot be
increase at whatever price because the supply of mineral may be exhausted.
CHANGE IN QUANTITY SUPPLIED AND CHANGE IN SUPPLY
Change in quantity supplied
They are basically two
1. Decrease in quantity supplied
2. Increase in quantity supplied
Decrease in Quantity Supplied: this is also known as a movement along the
supply curve as a result of decrease in price of the commodity.

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 Price
S
P2

P1

0 Q1 Q2 Quantity
DECREASE IN QUANTITY SUPPLY
The figure above the quantity decrease from Q1 to Q2 as price decrease from P2 to
P1
Increase in quantity supply: the quantity offered for sale increase as a result of
increase in price of the commodity.
Price
S
P2

P1

0 Q1 Q2 Quantity
INCREASE IN QUANTITY SUPPLY
The figure above shows as the quantity supplied increase from Q1 to Q2 the price
increase from P1 to P2

Change in Supply
The change in supply is also of two types also known as a shift in supply curve
1. Decrease in supply
2. Increase in supply
Decrease in supply: the supply curve shifts to the left. This is brought about by an
unfavorable change in factors affecting supply other than price of the commodity.
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 Price
S2 S1

S2 S1

0 Q2 Q1 Quantity
DECREASE IN SUPPLY

The figure above shows as the quantity supply decrease from Q1 to Q2, the supply
curve shifts from S1 to S2 showing in change in quantity supplied.
Increase in Quantity supplied: the supply curve shifts to the right

Price
S0 S1

S0 S1

0 Q0 Q1 Quantity
INCREASE IN SUPPLY
The figure above shows as the quantity supply change from Q0 to Q1 supply curve
shift from S0 to S1 to show an increase in supply.

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THEORY OF EQUILIBRIUM

PRICE PER EGG (NAIRA) QUANTITY DEMANDED QUANTITY SUPPLIED

PER WEEK PER WEEK
70 100 340
60 140 300
50 180 260
40 220 220
30 260 180
20 300 140
10 340 100

EQUILIBRIUM PRICE AND QUANTITY

Question 1: The demand and supply of a commodity are given respectively as
Quantity demanded (Qd) = 40- 4p
Quantity supplied Q(s) = 12p -24
Where p is given in naira
a. Calculate the equilibrium price
b. The quantity bought at the price
c. The quantity sold at the price

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 SOLUTION
a. Equilibrium price
(Qd) = 40- 4p
Q(s) = 12p -24
At equilibrium price Qd = Qs
40- 4p = 12p -24
Collect like terms
40+24 =12p+4p
64= 16p
Divide both sides by coefficient of p
64 16 𝑝
=
16 16
P=4
Equilibrium price = N4.00
b. Quantity bought at equilibrium price.
To find Q substitute p in (Qd) = 40- 4p
(Qd) = 40- 4p
(Qd) = 40- 4(4)
(Qd) = 40- 16
(Qd) = 24
c. Quantity sold at equilibrium price.
To find Q substitute p in (Qs) = 12p- 24
(Qs) = 12(p) - 24
(Qs) = 12(4) - 24
(Qs) = 48- 24
(Qs) = 24
THEORY/CONCEPT OF COST
The term cost is ambiguous, since many meanings can be attached to it. However,
in other to produce goods and services, firms have to incur expenditure on inputs
such as land, buildings, raw material, machinery, tools and equipment, labour,
transportation etc. therefore expenses incurred in production constitute the cost of
production of the firm.
TYPES OF COST
1. Fixed cost: this is sometimes referred to as overhead cost or unavoidable
cost. This cost remains constant no matter the level of production. Examples
of fixed cost include, money spent on rent and fixed machinery etc
2. Variable cost: they are cost which change with the scale of production. This
type of cost is directly proportional to the level of output of the firm.
Example of variable cost, money spent on purchase of raw materials and
power
3. Total cost: this is the overall expenditure involved in producing a given
commodity.
4. Average cost: this is the cost of producing each unit of commodity
𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑐𝑜𝑠𝑡 =
𝑡𝑜𝑡𝑎𝑙 𝑜𝑢𝑡𝑝𝑢𝑡

20
 Example if the total cost of production is N400 and 100 unit of the
commodity are produced, average cost is N4.00.
5. Marginal cost: the additional cost incurred in producing an additional unit
of a commodity. Marginal cost is also known as increment cost
Example 1
OUTPUT (Q) TOTAL COST (TC) AVERAGE COST (AC) MARGINAL COST (MC)

1 8 8 -
2 14 C F
3 A 6 G
4 20 D H
5 B 6 I
6 48 E J

1. 𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑐𝑜𝑠𝑡 × 𝑂𝑢𝑡𝑝𝑢𝑡

𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡
2. 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝑜𝑠𝑡 =
𝑂𝑢𝑡𝑝𝑢𝑡
𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡
3. 𝑀𝑎𝑟𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 =
𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑂𝑢𝑡𝑝𝑢𝑡

SOLUTION
1. To find A (Total Cost)
𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑐𝑜𝑠𝑡 × 𝑂𝑢𝑡𝑝𝑢𝑡
=6×3
= 18.
2. To find B (Total Cost)
𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑐𝑜𝑠𝑡 × 𝑂𝑢𝑡𝑝𝑢𝑡
=6×5
= 30.

3. To find C (Average Cost )

𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝑜𝑠𝑡 =
𝑂𝑢𝑡𝑝𝑢𝑡
14
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝑜𝑠𝑡 =
2
= 7.
4. To find D (Average Cost )
𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝑜𝑠𝑡 =
𝑂𝑢𝑡𝑝𝑢𝑡
20
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝑜𝑠𝑡 =
4
= 5.
5. To find E (Average Cost )
𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝑜𝑠𝑡 =
𝑂𝑢𝑡𝑝𝑢𝑡
48
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝑜𝑠𝑡 =
6
=8 .

6. To find F ( Marginal cost )

21
 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡
𝑀𝑎𝑟𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 =
𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑂𝑢𝑡𝑝𝑢𝑡

𝑇𝐶2 − 𝑇𝐶1
𝑀𝑎𝑟𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 =
𝑄2 − 𝑄1

14 − 8
𝑀𝑎𝑟𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 =
2−1
=6
7. To find G ( Marginal cost )
𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡
𝑀𝑎𝑟𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 =
𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑂𝑢𝑡𝑝𝑢𝑡

𝑇𝐶3 − 𝑇𝐶2
𝑀𝑎𝑟𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 =
𝑄3 − 𝑄2

18 − 14
𝑀𝑎𝑟𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 =
3−2
=4
8. To find H ( Marginal cost )
𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡
𝑀𝑎𝑟𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 =
𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑂𝑢𝑡𝑝𝑢𝑡

𝑇𝐶4 − 𝑇𝐶3
𝑀𝑎𝑟𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 =
𝑄4 − 𝑄3

20 − 18
𝑀𝑎𝑟𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 =
4−3
=2
9. To find I ( Marginal cost )
𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡
𝑀𝑎𝑟𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 =
𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑂𝑢𝑡𝑝𝑢𝑡

𝑇𝐶5 − 𝑇𝐶4
𝑀𝑎𝑟𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 =
𝑄5 − 𝑄4

30 − 20
𝑀𝑎𝑟𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 =
5−4
= 10
10. To find ( Marginal cost )
𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡
𝑀𝑎𝑟𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 =
𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑂𝑢𝑡𝑝𝑢𝑡

𝑇𝐶6 − 𝑇𝐶5
𝑀𝑎𝑟𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 =
𝑄6 − 𝑄5

48 − 30
𝑀𝑎𝑟𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 =
6−5
= 18

22
Example 2

OUTPUT TOTAL TOTAL TOTAL AVERABLE AVERAGE MARGINAL COST

(Q) FIXED VARIABLE COST VARIABLE TOTAL COST (MC)
COST COST (TVC) (TC) COST (AVC) (ATC)
(TFC)
0 100 0 100 0 100 -
1 100 40 C F K P
2 A 64 164 G L Q
3 100 U 180 H M R
4 100 88 188 I N S
5 100 B 196 J O T

NOTE: Total fixed cost is constant but also mathematically calculated

1. 𝑇𝑜𝑡𝑎𝑙 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡 = 𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 − 𝑇𝑜𝑡𝑎𝑙 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡
2. 𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 = 𝑇𝑜𝑡𝑎𝑙 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡 + 𝑡𝑜𝑡𝑎𝑙 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡
3. 𝑇𝑜𝑡𝑎𝑙 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡 = 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 − 𝑡𝑜𝑡𝑎 𝑡𝑜𝑡𝑎𝑙 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡
𝑇𝑜𝑡𝑎𝑙𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡
4. 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡 =
𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦
𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡
5. 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑡𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 =
𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦
𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡
6. 𝑀𝑎𝑟𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 =
𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑂𝑢𝑡𝑝𝑢𝑡
SOLUTION
1. To find A (Total Fixed Cost)
𝑇𝑜𝑡𝑎𝑙 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡 = 𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 − 𝑇𝑜𝑡𝑎𝑙 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡
= 164 − 64
= 100
2. To find U (Total Variable cost)
𝑇𝑜𝑡𝑎𝑙 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡 = 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 − 𝑡𝑜𝑡𝑎 𝑡𝑜𝑡𝑎𝑙 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡
= 180 − 100
= 80
3. To find B (Total Variable cost)
𝑇𝑜𝑡𝑎𝑙 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡 = 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 − 𝑡𝑜𝑡𝑎 𝑡𝑜𝑡𝑎𝑙 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡
= 196 − 100
= 96
4. To find C (Total cost)
𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 = 𝑇𝑜𝑡𝑎𝑙 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡 + 𝑡𝑜𝑡𝑎𝑙 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡
= 100 − 40
= 140
5. To find F,G,H,I,J (Average Variable Cost)
𝑇𝑜𝑡𝑎𝑙 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡 =
𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦
40
𝐹= = 40
1
64
𝐺= = 32
2
80
𝐻= = 27
3
88
𝐼= = 22
4
23
 96
𝐽= = 19.2
5
6. To find K, L, M ,N,O (Average Total Cost )
𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑡𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 =
𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦
140
𝐾= = 140
1
164
𝐿= = 82
2
180
𝑀= = 60
3
188
𝑁= 472
4
196
𝑂= = 39.2
5
7. To find P,Q,R,S T (Marginal cost)
𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡
𝑀𝑎𝑟𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 =
𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑂𝑢𝑡𝑝𝑢𝑡
40
𝑃= = 40
1
24
𝑄= = 24
1
16
𝑅= = 16
1
8
𝑆= =8
1
8
𝑇= =8
1

MARKTET STRUCTURE
Market defined as any arrangement, system or organization whereby buyers and
sellers of goods and services are brought into contact with one another for the
purpose of transacting business.
This contact can be through different types of communication system such as
telephone, letter, telegraph etc and it don’t matter if the buyer and seller are close
to each other physically. The essence is for the buyer and seller to strike a bargain.
Type of Market Base on Commodities
1. Consumer goods market: consumer goods could be manufactured goods
such as cement, pens etc and may also include agricultural products such as
rice, yam beans plantain etc.
2. Labour market which include professional workers, skilled, unskilled and
semi-skilled.

24
 3. Capital and money market include banks and financial institutions which
give long term loan known as capital market and short term loan known as
money market.
4. Stock exchange market: buyers and sellers of shares
5. Foreign exchange foreign transaction where foreign transaction are carried
out or foreign currencies are bought and sold
Type of market according to price
In relation to price determination, market could be classified into perfect and
imperfect market.
Perfect market (perfect competition)
Perfect completion exists if the following features or condition are present
1. Homogenous commodity: commodity bought and sold must be identical that
is same in shape, colour, size etc. and must not be branded e.g. beer must be
beer in the eyes of the consumer and not harp, star, rock, Guinness.
2. Large number of buyers and sellers
3. All buyers and sellers must have perfect knowledge of market transaction
4. Free entry and exit of buyer and seller.
5. No preferential treatment: all buyers must be treatment the same in relation
to price
6. Good must be portable.
Imperfect market (imperfect competition)
In real world a perfect market does not exist in its pure form
Types of imperfect market
1. Monopolistic competition: This is a market situation where many sellers
produce identical goods but have different commodities and differentiated
by brand.
2. Oligopoly this kind of market have few sellers or producers due to large
capital requirement

25
3. Duopoly: this type of market has only two sellers or producers of o
commodity
4. Monopsony: a market situation where there is only one buyer of a
commodity either single individual or a group of persons acting as a unit.
5. Oligopsony: a market situation where they are few buyers and many sellers
of a commodity
Conditions for imperfect market

1. Homogenous commodity: commodity bought and sold are not identical

they are not the same in the eyes of the consumer
2. One or few number of buyers and sellers
3. Imperfect knowledge of market transaction
4. No Free entry and exit of buyer and seller.
5. No preferential treatment exists: all buyers must be treatment the same in
relation to price
6. Good may not be portable.

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