The table below shows the total revenue schedule of a farmer who produces maizze. Use...
The table below shows the total revenue schedule of a farmer who produces maizze. Use the informatiom in the table to answer the qeston that follows;
| Output (in bags) | Total Revenue ($) |
| 0 | 0 |
| 1 | 6 |
| 2 | 12 |
| 3 | 18 |
| 4 | 24 |
| 5 | 30 |
| 6 | 36 |
(a) At each level of output, calculate the farmer's marginal revenue (MR).
(b) What is the price of a bag of maize? Explain your answer.
(c) In what market structure is the farmer operating? Give a reason for your answer.
Explanation
(a) MR = \(\frac{\bigtriangleup TR} {\bigtriangleup Q}\)
MR\(_{1}\) = \(\frac{6 – 0}{1 - 0}\) = \(\frac{6}{1}\) = 6
MR\(_{2}\) = \(\frac{12 - 6}{2 - 1}\) = \(\frac{6}{1}\) = 6
MR\(_{3}\) = \(\frac{18 - 12}{3 - 2}\) = \(\frac{6}{1}\) = 6
MR\(_{4}\) = \(\frac{24 - 18}{4 - 3}\) = \(\frac{6}{1}\) = 6
MR\(_{5}\) = \(\frac{30 - 24}{5 - 4}\) = \(\frac{6}{1}\) = 6
MR\(_{6}\) = \(\frac{36 -30}{6 - 5}\) = \(\frac{6}{1}\) = 6
(b) P = AR = \(\frac{TR}{Q}\) e.g AR\(_{1}\) = \(\frac{6}{1}\) = $6.00
Therefore the price of a bag of maize is $6.00.
(c) The farmer operates in a perfectly competitive market. In perfect competition MR = AR. Since from the calculation, MR = $6.00 and AR =$6.00, then the farmer operates in perfect competitionORbecause price is fixed at $6.00 at all levels of output.