Homework 1 Economics 101

Frank Liu (704172273)

1)

C ( Q )=10+ MCQ , MC > 0 and is constant. Also, P (Q )=202 Q .

a) The monopoly will make positive profits as long as TR > C. So
10
when 20 Q2 Q2> 10+QMC , or MC< 202 Q
. To maximize profit
Q
we set MR to MC, which leads us to: MC=204 Q .
b) =TRTC , so now we have to define TR and TC.
TC=10+Q2M C , And TR=Q1 P ( Q 1) + ( Q2Q1 ) P(Q 2) . Therefore:
=Q 1 P ( Q1 ) + ( Q 2Q 1 ) P(Q2)(10+ MCQ2 ) . Note that we have two
variables in this maximization problem that are independent of each
other. Therefore, we have to use partial derivatives to solve this
problem.

=2Q122Q1 +2 Q 2
i)
Q1

=2Q 22 2Q2 +2 Q1 Q2 +20MC

ii)
Q2
Then from determining maximization we set each one to zero and
solve the simultaneous equation. In conclusion we get
MC=206 Q 1=203Q2 .
As long as Q1 P ( Q1 ) + ( Q2Q 1) P ( Q2 )( 10+ MCQ 2 ) >0 , profit will be
Q 1 P ( Q 1 ) + ( Q 2Q 1 ) P ( Q2 ) 10
positive. In other words, when MC<
.
Q2
2)
Q1=60P1 , P1=60Q1 , R1=60Q 1 Q12 , MR1=602 Q1
1
2
Q2=722 P2 , P2 =36 Q , R 2=36 Q2Q2 , MR 2=36Q2
2 2
The two MR lines intersect at x=24. MR is a piecewise function
described as such:
MR=602 Q if x< 24,otherwise MR=36Q .
MC=C ' =4 , the intersection between the MC function with the MR
1
function occurs at Q2=32. P2 ( 32 )=36 ( 32 )=20 . P = 20.
2
a)

b) Both markets must be done separately:

i) MR1=602 Q1 , set MR = MC and we get: 4=602 Q1 ,
Q1=28 . And then P1 (28)=6028=32
ii) MR2 =36Q2 , Q2=32 , P2 ( 32 ) =3616=20 .
c)

=TRTC= ( P2+5 ) ( 55P2 ) + ( P2 ) ( 17P2 )4 ( 2 P2+ 5 )

2
=3 P 2 +114 P2+225 , by finding its derivative we can find it
maxes for P2=14.75 ,P1 =19.75

d) In the part a, =2032432=512 . In part b,

=2832+ ( 3228 )20324=848 . Lastly, in c we can calculate insert
the value of P2 into the profit function we constructed. We get
=690.