AM/ECON 11B Midterm Exam 1 — White solutions Fall 2019

(1) The marginal revenue function for a monopolistic firm is

dr 2000
= .
dq (3q + 5)2

(a) (4pts) Find the firm’s revenue function.

1
(i) Integrate, using the substitution u = 3q + 5 =⇒ dq = 3 du:
Z Z
2000 2000 2000 2000/3 2000/3
2
dq = u−2 du = (−u−1 ) + C = − +C =− + C.
(3q + 5) 3 3 u 3q + 5

2000/3
So the revenue function has the form: r=− + C.
3q + 5
(ii) Solve for C using the assumption r(0) = 0:

2000/3 400 400

0 = r(0) = − +C =− + C =⇒ C = ,
3·0+5 3 3
400 2000/3 400q
so the revenue function is r = − or r = , after simplifying.
3 3q + 5 3q + 5
(b) (2 pts) Find the demand for the firm’s product when the price is p0 = 8.

Price (p), revenue (r) and demand (q) are related by the equation r = pq, which means that
the demand equation can be found from the revenue function:
r 400
p= = .
q 3q + 5
Now we plug in p = 8 and solve for q:
400 45
8= =⇒ 3q + 5 = 50 =⇒ q = = 15.
3q + 5 3

(2) The marginal propensity to consume for a small nation is given by

dC 4Y + 10
= ,
dY 5Y + 1
where the nation’s annual consumption C and annual income Y are both measured in billions of dollars.

(a) (2 pts) Express the total change in the nation’s annual consumption when income increases from Y = 10
to Y = 20 as a definite integral.
Z 20
4Y + 10
∆C = dy.
10 5Y + 1

1
(b) (4 pts) Find the total change in the nation’s annual consumption when the nation’s annual income
increases from $10 billion to $20 billion.

Z 20
4Y + 10
∆C = dy
10 5Y + 1
Z 20
4 9.2 4
= + dy using long division: 4Y + 10 = (5Y + 1) + 9.2
10 5 5Y + 1 5
Z 20 Z 20
4 1
= dY + 9.2 dY
10 5 10 5Y +1
 20
4Y  using the substitution u = 5Y + 1 in the
= + 1.84 ln |5Y + 1| 
5 10
second integral in the line above.

= (16 + 1.84 ln 101) − (8 + 1.84 ln 51) ≈ 9.257.

(3) (6 pts) Find the Gini coefficient of inequality for the nation with income distribution curve given by
y = 0.6x3 + 0.3x2 + 0.1x,
(where y × 100% is the percentage of national income earned by the lowest earning x · 100% of the
population).

Z 1
x − (0.6x3 + 0.3x2 + 0.1x) dx Z 1 Z 1
γ = 0
Z 1 =2 x dx − 2 0.6x3 + 0.3x2 + 0.1x dx
0 0
x dx
0
 !
1
0.6 4 0.3 3 0.1 2 1
Z
= 1−2 0.6x3 + 0.3x2 + 0.1x dx = 1 − 2 x + x + x 
0 4 3 2 0

= 1 − 2 (0.15 + 0.1 + 0.05 − (0 + 0 + 0)) = 0.4.

(4) Compute the integrals.

2ex 2 u1/2
Z Z
2 4
(a) (2 pts) √ x dx = u−1/2 du = · + C = (3ex + 4)1/2 + C,
3e + 4 3 3 1/2 3
2
using the substitution u = 3ex + 4 =⇒ du = 3ex dx =⇒ 2ex dx = 3 du.

 25 
Z 3 Z 25 3/2 
p 1 1 u   1 61
(b) (2 pts) x x2 + 16 dx = u1/2 du =  = (125 − 64) = ,
2 16 2 3/2  3 3

0
16

using the substitution u = + 16 =⇒ du = 2x dx =⇒ x dx = 21 du and remembering to

x2
change the limits of integration: x = 0 =⇒ u = 16 and x = 3 =⇒ u = 25.