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1. Monthly demand and cost relations for Presto’s frozen dessert maker are as follows: P = $60 - $0.005Q; TC =
$100,000 + $5Q + $0.0005Q2
∂ TC
(a)Compute the marginal cost. MC= =5+0.0005( 2) Q2−1=¿MC =5+ 0.001 Q (b)Compute
∂Q
the profit-maximizing quantity. To find the profit-maximizing price, we need to find the price at which MR = MC.
∂ TR
TR=PxQ= ( 60−0.005 Q ) Q=60 Q−0.005Q 2 = MR= =60−0.005( 2) Q2−1 =
∂Q
MR=60−0.01Q Profit maximization requires: MR = MC, that is,
55
60−0.01Q =5+0.001Q → 60−5=0.001 Q+ 0.01Q →55=0.011 Q →Q = →Q =5,000 (c
0.011
)Compute the profit-maximizing price. Plugging the value of Q from above result into the demand equation yields,
P=60−0.005 Q=60−0.005 (5,000)=60−25=35 → P=$ 35
(d)Compute Presto’s total monthly profit. (d ) Profit=TR −TC = P.Q - TC ¿ ( P .Q ¿−¿ ($100,000 +
100,000+5 ( 5,000 )+ 0.0005(5,000)2
2
$5Q + $0.0005Q ) ]= Profit =$ 37,500
¿ [ 35 (5,000) ]
−¿
2. The marketing and accounting departments of Pharmed Caplets, Inc. have provided you with the following
monthly total revenue and total cost information: TR = $900Q - $0.1Q2; TC = $36,000 + $200Q + $0.4Q2 (a)
∂ TC
Compute the profit maximizing quantity. MC= =200+0.4 (2)Q2−1=MC=200+ 0.8 Q
∂Q
To find the profit-maximizing price, we need to find the price at which MR = MC.
∂ TR
MR= =900−0.1( 2) Q2−1=¿ MR =900− 0.2Q . Profit maximization requires: MR = MC,
∂Q
that is, 900−0.2Q =200+0.8 Q →900−200=0.8Q + 0.2Q →700=→Q =700 (b) Compute the
profit-maximizing price. Plugging in the value of Q from above result into the TR equation yields,
TR 581,000
TR=900Q −0.1 Q2=900 (700)−0.1 ( 7002 ) =630,000−49,000=TR =581,000→ P= = =830
→P=$
Q 700
(c) Compute its total monthly profit. (c ) Profit =TR −TC =¿ ( 581,000 ¿−¿ ($36,000 +
$200Q +
36,000+200 ( 700 ) +0.4( 700)2
$0.4Q2)
¿ [ 581,000 ]
] = $209,000 Profit =$ 209,000
−¿
3. Price of the Indigent Care Center, Inc. is constant at $50. This means that P = MR = $50. Total cost relation for
the company is as follows: TC = $78,000 + $18Q + $0.002Q2
Calculate the output level that will maximize the profit.
( ) ∂TC ∂78,000 ∂ ∂ 0.002Q2 ∂Q ∂Q2 2−1
18Q +
a MC= = ∂Q ∂Q =0+18 +0.002 =18+ 0.002(2) =18+0.004 Q
∂Q Q
∂Q ∂Q ∂Q
+
MC=18+0.004 Q
When price is stable (constant), price equals marginal revenue, therefore, MR = $50 MR=$ 50
Profit maximization requires: MR = MC, that is,
32
50=18+ 0.004 Q→ 50−18=0.004 Q →32=0.004 Q →Q = =8,000 →Q =8,000
0.004
(b) Calculate the maximum profit. ¿
( 50 ¿(8,000) ¿−¿ (78,000 +
Profit TC P . Q−TC =¿
=TR− =
18Q + 0.002Q2) 78,000+18 (8,000)+0.002(8,000)2
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¿ [ 400,000 ] −¿ ]=$ Profit =$ 50,000
4. Suppose the Indigent Care Center, Inc. in question (3) is a not-for-profit organization and wants to provide
as much patient care as possible with zero profit, then; Compute the company’s optimal quantity.
For a not-for-profit organization, Profit =0 →TR−TC =0 →TR =TC →P. Q=¿ 78,000 +
18Q + 0.002Q2
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¿ ( 50 ) . ( Q )=78,000+ 18Q + 0.002Q2 → 50 Q=78,000+18 Q +0.00 2 Q2 → 0=−50 Q +78,000+18 Q
+0.002Q 2 → 0
0.002 Q 2 → 0.002Q 2−32Q +78,000 = 0
2
The above equation resembles the equation of a quadratic function: a X +bX + c Where,
a=0.002, b=−32, c=78,000,∧X =Q Such an equation can be solved as,
−b± √ b2−4 −(−32) ± √ (−32)2−4 (0.002) 32± √1,024−624 32± √400 32 ±20
ac (78,000)
X= , 20
that is 52
, = =
Q= 32 + 2( 0.002)
32 − 20 12 0.004 0.004 0.004
Therefore ,Q 2a= = =13,000 ; Q = = =3,000
1
0.004 0.004 2
0.004 0.004
Since both of the quantities (13,000 and 3,000) yield zero profit, the organization can choose any of the quantities.
But, since the motive of a not-for-profit organization is to also provide maximum service, it will produce 13,000
instead of 3,000.
5. The revenue and cost relations of Commercial Recording, Inc. are; TR = $3,000Q - $0.5Q2; MR =
∂TR ∂TC
=$ 3,000−$ 1 Q ; TC = $100,000 + $1,500Q + $0.1Q2; MC = =$ 1,500+ $ 0.2 Q
∂Q ∂Q
Calculate output, marginal cost, average cost, price, and profit at the average cost-minimizing activity level.
TC 100,000+1,500 Q+ 0.1Q2 −1
+ 1,500+0.1Q
Q
Average cost minimization requires that MC = AC, that is,
1,500+0.2 Q=100,000 Q−1+1,500+ 0.1Q → 0.2Q −0.1Q =100,000Q−1 → 0.1Q =100,000Q−1 →0.1
Q2=100,0
→Q1 =1,000; Q2=−1,000
Since output (Q) cannot be negative, therefore, Q = 1,000.
MC=1,500+0.2 Q=1,500+ 0.2(1,000)=1,500+ 200=MC=$ 1,700
Now,
100,000
AC =100,000 Q−1+ 1,500+0.1Q = +1,500+0.1 (1,000) → AC=100+ 1,500+100=$ 1,700
1,000
TR 3,000Q −0.5 Q2 ( )
10. Shake-n-Shing, Inc. has the following relation between its marginal costs and monthly output: MC = $50 +
$0.00005Q
(A)Calculate the marginal cost at Q = 500,000.
MC=$ 50+$ 0.00005Q =50+0.00005 (500,000)=50+ 25= $ 75
(B)Calculate the profit-maximizing level of output if prices are stable in the industry at $100 per bundle,
and, therefore, P = MR = $100.
(B)Profit maximization requires: MR = MC, that is,
50
100=50+ 0.00005Q →100−50=0.00005Q → 50=0.00005 Q →Q = =1,000,000 :
Profit−maximizing
0.00005