ASSIGNMENT #2

ECO401

By

Naila Shakir
MC200403921
The Case
COVID-19 Vaccine was the great challenge for the pharmaceutical companies. There are
different companies who are competing to produce COVID-19 Vaccine like Astra Zeneca,
Pfizer, Moderna, Novavax, Sino Vac, Curevac, and Johnson & Johnson etc. Pfizer Inc. is one of
the world’s largest Pharmaceutical companies. It is largest United States corporations by total
revenue. In May 2020, Pfizer began testing four different COVID-19 vaccine variations. It is
also preparing Vaccine tozinameran with the help of German biotechnology company BioNTech.
This company is expecting to produce hundreds of millions of doses in 2021. Suppose the total
revenue (TR) and total cost (TC) functions of this company are:

𝑻𝑹 = 𝟏𝟓𝟎𝑸 − 𝟒𝑸𝟐
𝑻𝑪 = 𝟒𝟎 + 𝟏𝟎𝑸 + 𝟑𝑸𝟐

Requirements:
a) Calculate the profit maximizing level of output for a price making firm.
b) Calculate the amount of profit earned by the firm at profit maximizing level of output
Calculated in Part 1.
c) Mathematically prove the slope of MR is twice the slope of AR.

Solution:

A:

Maximum level of profit: MR=MC

MR= dTR / dQ
dTR 50 / 4Q = d150AQ - d4Q2 / dQ = MR
MR= 150 - 8Q
MC= dTC/dQ

dTC / dQ= d40 / 4Q + dl0Q / 4Q + d3Q2 / 4Q = MC

MC= 10 + 6Q
MR=MC
150-8Q=10+6
150-10=6Q+8Q
14Q= 140
Q = 140/14
Q= 10
Maximization level of profit is at 10 units of the output.
Solution:

B:

Profit =TR-TC

Profit = (150Q - 4Q2) - (40-F 10Q + 3Q2)

Profit =150Q-4Q2-40-10Q-3 Q2
Profit = -7Q2 +140Q - 40
Profit = -7(10)2+ 140(10)- 40
Profit = -700 + 1400 - 40
Profit = 660
Profit is Rs.660/- at profit maximization level.
Solution:
C:
AR = TR / Q

TR / Q = AR = 150Q / Q - 4 Q2 / Q
AR=150-4Q
AR’s Slope = dAR / dQ
dAR / dQ = Slope of AR = d150 / dQ - d4Q / dQ
AR’s Slope = -4
MR= 150 - 8Q
MR’s Slope = dMR / dQ
dMR / 4Q =
MR’s Slope= d150/dQ - d8Q/dQ
MR’s Slope = -8
MR’s Slope is -8 and AR’s Slope is -4
Thus, it is the MR’s Slope is twice the AR’s Slope.

The end