IQRA UNIVERSITY IU

Managerial Economics
Assignment

Question 1) A consumer spends all her income on food and clothing. At the current prices of
price of food = Rs. 10 and price of cloth = Rs. 5, she maximizes her utility by purchasing 20
units of food and 50 units of clothing.(Hint: Take food on x-axis and cloth on y-axis)

i) What is the consumer’s income?

ii) What is the consumer ‘s marginal rate of substitution of food for clothing at the equilibrium

Question 2) Ali’s budget line relating good X and good Y has intercept of 50 unit of good X and
20 units of good Y. if the price of good X is 12, what is Ali’s income? What is the price of good
Y? What is then slope of budget line?

Question 3) Colgate sells its standard size toothpaste for Rs. 25. Its sales have been on an
average 8000 units per month over the last year. Recently, its competitor Sparkle reduced the
price of its same standard size toothpaste from Rs. 35 to Rs. 30. As a result Colgate sales
declined by 1500 units per month.

i) Calculate the cross elasticity between the two products.

ii) What does your estimate indicate about the relationship between the two?

Question 4) You are given the following marginal utilities of goods X and Y obtained by a
consumer. Given that price of X = Rs. 2.5, price of Y = Rs. 1 and income = Rs. 11, find out the
optimal combination of goods
 No. of unit Marginal utilities Marginal
consumed of X utilities of
of a Y
commodity
1 15 10
2 12.5 9
3 10 8
4 7.5 7
5 5 6
6 2.5 5
7 0.5 4

Question 5) Suppose the market demand for playing cards is given by the equation

Q = 600 – 100P

Where Q is the no. of decks of cards demand each year and P is the price in Rupee. For a price
increase from Rs. 2 to Rs. 3 per deck, what is the price elasticity?

Question 6) A publishing company plans to publish a book. From the sales data of other
publisher of similar books, it works out the demand function for the book as:

Q = 5000 – 5P

Find out

i) Demand curve
ii) Number of book sold at P = Rs. 25
iii) Price for selling 2500 copies
iv) Price for zero sales
v) Elasticity for fall in price from Rs. 25 to Rs. 20.

Question 7: Given production function:

U = X 3/4 . Y1/4
 Find out the optimal quantities of the two commodities using Lagrangian method, if it is
given that price of X is Rs.3 and price of capital is Rs.6 and total cost is equal to Rs.120.

Question 8: Formulate the demand equations and estimate Qd for P=33 by using the following
data:

Price Quantity
level Demand

38 200

36 500

34 800

32 900

30 1000

28 1400

Question 9: Given the following cost function:

TC = 1500 + 15Q – 6Q2 + Q3

i. Determine the total fixed cost for producing 1000 units of output and 500 units of output.
ii. What is AFC at:
a) 1000 units of output
b) 500 units of output
iii. Determine TVC, AVC, MC and AC at 50 units of output.

Question 10: The demand function equation faced by PTCL for its computers is given by:
P = 50,000 – 4Q

i. Write the marginal revenue equation

ii. At what price and quantity marginal revenue will be zero?
iii. At what price and quantity will total revenue be maximized?
Question 11: Suppose the following demand and supply function:
Qd = 750 – 25P
Qs = -300 + 20 P

i. Find equilibrium price and quantity

ii. Find consumer and producer surplus

Question 12: Given production function:

Q = L 3/4 . K1/4
Find out the optimal quantities of the two factors using Lagrangian method, if it is given that
price of labor is Rs.6 and price of capital is Rs.3 and total cost is equal to Rs.120.

Question 13: Given the cost function is

TC = 6L + 3K
Find out the optimal quantities of the two factor using Lagrangian method, if it is given that
output is equal to 13.46 = L3/4 . K1/4.

Question 14: Suppose that the production function of the firm is:
Q = 100L1/2.K1/2
K= 100, P = $1, w = $30 and r = $40. Determine the quantity of labor that the firm should hire
in order to maximize the profits. What is the maximum profit of this firm?

Question 15: Solve the above problem for w = $50.

Question 16: Given TC = 100 + 60Q – 12Q2 + Q3. Find

a. The equations of the TVC, AVC, and MC functions.
b. The level of output at which AVC and MC are minimum, and prove that the AVC and
MC curves are U-shaped.
c. Find the AVC and MC for the level of output at which the AVC curve is minimum.
Question 17: Answer the same questions as in the above problem if:
TC = 120 + 50Q – 10Q2 + Q3

Question 18: If the demand function faced by a firm is:

Q = 90 – 2P
TC = 2 + 57Q – 8Q2 + Q3

Determine the level of output at which the firm maximizes the profit.

Question 19: Determine the best level of output for the above question by the MR and MC
approach.

Question 20: Determine the best level of output for a perfectly competitive firm that sells its
product at P = $4 and faces TC = 0.04Q 3 – 0.9Q2 + 10Q + 5. Will the firm produce this level of
output? Why?

Question 21: Suppose that the production function is given as follows:

TPL = 10L + 5L2 + L3
Find the total product, Marginal product and average product when L = 5.

Question 22: Find the optimum level of output and profit from the cost function
TC = 50 + 6Q2
and price
P = 100 – 4Q
Also derive marginal cost and marginal revenue.
Question 23: Suppose the discriminating monopolist is selling a product in two separate markets
in which demand function are

P1 = 80 – 2.5Q1
P2 = 180 – 10Q2
The monopolist total cost function is
 TC = 50 + 40Q
Determine the price to be charged in the two markets and amount of output to be sold in each
market so that profit is maximized. Also find the total profit to be made from the strategy of
price discrimination.

________________________________Good Luck ____________________________________