Wednesday, June 15, 2011

eco402 Assignment No:2 Solution 2011

Assignment:

Question no.1:
Suppose you are working in a mobile making firm operating in a perfectly
competitive market. Your cost of production is given by:
TC = 5000 + Q2
Where Q is the level of output and TC is total cost. The fixed cost of production is
Rs.5000.
a. If the price of a mobile is Rs.7200, how many mobiles should you produce to
maximize profit?
b. What will your profit level be?
(Marks = 6 + 6)
Question no.02:
If a sales tax of Rs.50 per unit of output is placed on one firm whose product sells for
Rs.500 in a competitive industry.
What will happen to price, output and profit?
(Marks = 03)
Important Note:
�� Calculate to the point where calculation is being required. NO need to write irrelevant
material or extra interpretation.


Solution:

Question no.1:
Suppose you are working in a mobile making firm operating in a perfectly
Competitive market. Your cost of production is given by:
TC = 5000 + Q2
Where Q is the level of output and TC is total cost. The fixed cost of production is
Rs.5000.
a. If the price of a mobile is Rs.7200, how many mobiles should you produce to
Maximize profit?

Solution:

Take derivative of to find the value of marginal cost where Q is the level of output
Tc is the total cost.

Now we find the marginal cost which is 2Q and the fixed price is 5000.
 Where MC=MR………..(1)
MR= price
And price is7200

MC= 2Q put the value of MC an MR in equation one
MC=MR
2Q=7200
Q=3600


b) What will your profit level be?
 
(Marks = 6 + 6)
Question no.02:
If a sales tax of Rs.50 per unit of output is placed on one firm whose product sells for
Rs.500 in a competitive industry.
What will happen to price, output and profit?
(Marks = 03)

The level of profit will be lower because the level of price at very high point.

It is just idea solution plz don’t copy as it is.

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