Economics

(ECO401)
Assignment # 02
Spring 2021

Name: Salman khan

Student ID: MC210202853
 Solution
A. Calculate profit maximizing output level of Samsung using marginal revenue
(MR) and marginal cost (MC) approach.

As we know that profit will be maximized at the point where:

MC=MR

Now we will find MC function by taking derivation of total cost function.

d (TC)
MC =
dQ
d
MC = (50+10Q)
dQ
MC = 10

MR function can be found by following

d (TR)
MR =
dQ
d
MR = (175Q+2.5Q2)
dQ
MR= 175 - 5Q

So, by equating the values of MC and MR function:

MC = MR
10 = 175 - 5Q
5Q = 175 – 10
5Q = 165
Q = 165/5
Q = 33

B. Find out the amount of profit earned by Samsung at profit maximizing level of
output calculated in part a.

As we know that the equation for total profit is:

Tπ = TR – TC
Tπ = (175Q – 2.5Q2) – (50 + 10)
Tπ = 175Q-2.5Q2 – 50 – 10Q
 Tπ = 165Q – 2.5Q2 – 50
Now we will put the value of Q=33
Tπ = 165(33) – 2.5(33)2 -50
Tπ = 5445 – 2.5(1089) – 50
Tπ = 5445 – 2722.5 – 50
Tπ = 2672.5

So, the profit maximized where the output is 33 and the maximum profit is 2672.5.

C. Calculate average revenue (AR) function and slope of average revenue (AR)
function.

By using the above information we can calculate AR:

TR = 175 – 2.5Q2

AR = TR/Q
AR = 175Q - 2.5Q2 / Q
AR = 175Q/Q – 2.5Q2/Q
AR = 175 – 2.5Q
AR = 175 – 2.5(33)
AR = 175 – 82.5
AR = 92.5

So, the average revenue function is 92.5.