eco401 Economics Assignment No.02 spring 27 May 2011

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Semester “Spring 2011”
“Economics (ECO401)”
Assignment No.02 Marks: 20
Question:
A firm operating in competitive environment faces the following price (P),
quantity (Q), total fixed cost (TFC) and total variable cost (TVC) schedules
respectively:
A. Calculate total revenue (TR), marginal revenue (MR), total cost (TC),
marginal cost (MC) and profit (π for each level of output (Q).
B. Find the optimal level of output and price which maximizes firm’s
profit.
Marks: A= 18 (1 for each value), B= 2
Important Note:
�� Solution of Part A should be in the following format.
Important Tips
1. This Assignment can be best attempted from the knowledge acquired after
watching video lecture no. 13 to lecture no 22 and reading handouts as well
as recommended text book.
2. Video lectures can be downloaded for free from
Q P TFC TVC
400 2.5 150 750
500 2.25 150 830
600 2 150 905
700 1.75 150 995
Q P TFC TVC TR MR TC MC Profit (π
400 2.5 150 750
500 2.25 150 830
600 2 150 905
700 1.75 150 995

[saneha]

[B]eco401 Economics Assignment No.02 idea solution spring 27 May 2011

Q P TFC TVC TR MR TC MC Profit
400 2.5 150 750 1000 - 900 - 100
500 2.25 150 830 1125 125 98 80 145
600 2 150 905 1200 75 1055 75 145
700 1.75 150 995 1225 25 1145 90 80[/B]

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[Vuhelper]

Assignment # 2

Question:
A firm operating in competitive environment faces the following price (P),quantity (Q), total fixed cost (TFC) and total variable cost (TVC) schedules respectively:

A. Calculate total revenue (TR), marginal revenue (MR), total cost (TC),marginal cost (MC) and profit (π for each level of output (Q).


Solution:-


Q
P
TFC
TVC
TR
MR
TC
MC
π
400
2.5
150
750
1000
—
900
—
100
500
2.25
150
830
1125
1.25
980
0.8
145
600
2
150
905
1200
0.75
1055
0.75
145
700
1.75
150
995
1225
0.25
1145
0.9
80

B. Find the optimal level of output and price which maximizes firm’sprofit.

Answer:-
As we know that profit is maximized at the point where MC = MR. The optimal level of Output (Q) and Price (P) at which maximizes firm’s profit is 600 and 2.