ASSIGNMENT: MANAGERIAL ECONOMICS ASSIGNMENT 4

NAME: Susanta Biswas ENTRY NO: 2019SMF6546

SECTION: A YEAR: 1st

4.
a. Marginal revenue as a function of Q for senior citizens MR=50-Q
b. Marginal revenue as a function of Q for another diners MR=100-2Q
c. MR=MC at P=10, Q becomes 40, substituting this value in the demand curve we get,
P=50-0.5*40=30. hence, 30 is the profit-maximizing price for senior citizen
MR=MC at P=10, Q becomes 45, substituting this value in the demand curve we get,
P=100-Q=55. Hence, 55 is the profit-maximizing price for other diners.
d. We can offer a discount of 45.45% to senior citizens.
e. 55*45+30*40-95*10=2725
f. MC=10
when MR=MC, 67-2/3Q=10, Q=85.5 optimal quantity
at 60.5 P=67-85.5/3= 38.5 optimal price
In this discrimination-free market price is high for senior citizens and low for other diners
g. profit in this market would be-38.5*85.5-10*85.5=2436.75

7. a. From the given graph equation of the demand curve will be, P+Q=120
for a perfectly competitive market P=MC hence, as MC=2 P=2 and from the equation we
get Q=118.
If there are 100 firms in a competitive environment, each will sell 118/100=1.18 at cost
hence no profit.
b. Since it is a perfectly competitive market change in output by a single entity would not
result in change of price of a hot dog.
c. since total production would be 100,000 selling at say price P, when one firm reduces
production by 1/5th or 5000, net production now would be 95000 or a 5% decrease which
will lead to a 5% increase in price of each hot dog, P’= 1.05P. Profit shared by all the sellers
would be .05P(95000)=4750P distributed among the 4 firms, so now every firm is making
profit.
d. Ability to earn profit is minimal in perfect competition, hence there is no incentive for a
small firm to decrease its production. While, in an oligopoly reduction of output leads to
generation of more profit for both the firm which is reducing the output as well as the other
partners in the oligopoly.