QUESTION FOUR [20 Marks]

a) Consider the following demand and cost functions

𝑃 = 25 − 3𝑄 𝑇𝐶 = 𝑄 2 + 6𝑄
Suppose the government imposes a per unit tax ′𝑡′ on all products produced by the firm and that
the total tax T collected is a function of output. Therefore, 𝑇 = 𝑡𝑄. Determine:
i. The quantity of output that maximizes profit. [5 Marks]
ii. The tax rate ′𝑡′ that maximizes total tax. [5 Marks]
iii. The maximum `tax T. [2 Marks]
b) i) In a survey of university students, 64 had taken mathematics course, 94 had
taken chemistry course, 58 had taken physics course, 28 had taken mathematics
and physics, 26 had taken mathematics and chemistry, 22 had taken chemistry and physics
course, and 14 had taken all the three courses. Find how many had taken one course only.
[4 Marks]

a) Demonstrate the Euler’s theorem for the following production functions [4 Marks]
𝜕𝑄 𝜕𝑄
Hint: 𝐾 𝜕𝐾 + 𝐿 𝜕𝐿 = 𝑄
2 8
i) 𝑄 = 𝐴𝐾 5 𝐿5

ii) 𝑄 = 𝐴𝐾 𝛼 𝐿𝛽