Virtual University, Pakistan

ASSIGNMENT NO _2_

Course Code: ECO401 Course Title: ECONOMICS

Teacher’s Name: Sayyad Abbas Ali Total Marks: 10 Marks
Date: JAN 29, 2021 (DOS) Obtained Marks:
Student’s Name: Hammad Khalid Roll. No.: bc200418008
Department: ADP (Operation Management)

Topic: “THE CASE”

Given:
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.

Sol:
As, MC= MR
MC= d TC/ dQ
10 + 6Q
MR= d TR / dQ
150 – 8Q
Now, as discussed earlier
MC=MR
10 + 6Q= 150 – 8Q
6Q + 8Q= 150 – 10
14Q = 140
Q = 140/14
Q = 10

a) Profit Maximizing= TR – TC
= 150Q – 4Q2- (40 + 10Q + 3Q2)
= 150Q – 4Q2 – 40 – 10Q - 3Q2
= 140Q – 40 – 7Q2
b) Total Profit Earned,
By, putting Q=10
= 1400 – 40 – 700
= 660
So, Maximum Profit is.
Tπ= 660

Now Calculating AR= TR/Q

= 150Q/Q - 4Q2/Q
= 150 – 4 Q
= 150 – 4(10)
= 150 – 40
= 110
So, AR= 110

Now,
C) slope of MR is twice the slope of AR.

Slope of MR = d MR/ dQ
= d/dQ (150 – 8Q)
=-8
Slope of MR = -8

Slope of AR = d AR/dQ
= d/dQ (150 – 4Q)
= -4
Slope of AR = -4

Hence Proved, Slope of MR is twice than the slope of AR