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Solution spring 2021 eco404 1
1. ECO404 - Assignment No. 01
Semester: Spring 2021
Student ID: MC190405830
Student Name: Engr. M. Kashaf Nazir
Submission Date: 22-05-2021
Requirement I:
Find out the output level (Q) that will maximize the profit.
Solution I:
Given data,
TC = 65000 + 15Q + 0.005Q2
Price = MR = 60
Taking the derivative of TC (Total Cost) w.r.t Q, to get the MC (Marginal cost).
MC =
𝑑 (𝑇𝐶)
𝑑𝑄
MC = 15 + (0.005 x 2) Q
MC = 15 + 0.01Q
At Profit Maximization, MR = MC
60 = 15 + 0.01Q
0.01Q = 60 – 15 = 45
Q = 45 / 0.01
Q = 4500 units
Requirement II:
Calculate the amount of Maximum profit.
Solution II:
Given data,
TC = 65000 + 15Q + 0.005Q2
Price = MR = 60
Max. Profit Quantity = Q = 4500 Units
As Profit = Total Revenue – Total Cost
2. ECO404 - Assignment No. 01
Semester: Spring 2021
Student ID: MC190405830
Student Name: Engr. M. Kashaf Nazir
Submission Date: 22-05-2021
So First we will calculate Total Cost and Total Revenue at Q = 4500,
Total Cost = TC = 65000 + 15Q + 0.005Q2
Total Cost = TC = 65000 + 15 (4500) + 0.005(4500)2
Total Cost = TC = 65000 + 67500 + 101250
Total Cost = TC = 233,750
As, P=MR (given) and P=AR,
So P=AR = MR = 60,
Total Revenue = TR = AR x Q
Total Revenue = TR = 60 x 4500
Total Revenue = TR = 270,000
As,
Profit = Total Revenue – Total Cost
Profit = 270,000 – 233,750
Profit = 36,250