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# ECO404 ASSIGNMENT # 01 DUE DATE: 12 TH MAY, 2016 MARKS: 10

SEMESTER SPRING 2016
MANAGERIAL ECONOMICS (ECO404)
ASSIGNMENT # 01
DUE DATE: 12
TH
MAY, 2016
MARKS: 10
Question # 1
Golden Flakes is a manufacturer brand of different flavor of snacks like potato chips,
corn chips, tortilla chips,cheese curls and many more. The brand has produced a new
flavor of sweet corn snacks for sale. The management wants to know the output levels
which minimize total cost (TC) and maximize total revenue (TR) of the firm. Suppose
Firm has following costand revenue functions.
TC = 1800 – 120Q + 0.025Q
2
TR = 1500 + 600Q – 0.06Q
2
Requirements:
Keeping in view the above scenario and given information, calculate the following,
a) Quantity of output that will minimize TC
b) Quantity of output that will maximize TR
(2.5 + 2.5)
Question # 2
Suppose an improvement in the weather leads to the bumper harvest of Banana crop. Due
to this bumper crop the price of bananas reduces from Rs. 70/dozen to 35/dozen and
quantity demanded of Bananas increases from150 dozens to 210 dozens in a particular
market. In table form, it can be written as:
Price Quantity demanded of
Banana
P1 = 70 Q1 = 150
P2 = 35 Q2 = 210
Requirements:
Keeping in view the above scenario and given information, calculate the following,
a) Price Elasticity of demand
b) Derive simple linear demand function / Curve (Hint : use P = a + bQ)
(2.5 + 2.5)
Note: You are advised to watch video lectures as well as study handouts and
recommended text books before attemptingthe assignment. Write down formula
and all relevant steps involved in calculations.
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### Replies to This Discussion

Eco 404 idea solution
P1 = 70
P2 = 35
Quality demanded of Banana
Q1 = 150
Q2 = 210
To find linear demand function 1st finds slop.
--------------------------------------------
b = P2 - P1/Q2 - Q1
b = 35-70/210-150
b = -0.58
Demand function
----------------
P = a + bQ
So
---
a = P - bQ
a = 35 - (-.58) (210)
a = 175
And
----
a = P - bQ
a = 70 - (-.58) (150)
a = 175
Price elasticity of demand
---------------------------
(Q2-Q1) x (P2+P1)
= ------- -------
(P2-P1) (Q2+Q1)
= 0.523
TC = 1800 - 120Q + 0.025Q2
To minimize the TC
------------------
MC = dTC / dQ
= 0.05Q - 120 = 0
By putting value of Q if MC > 0 then it will be minimize
For Q
-----
0.05Q - 120 = 0
Q = 120 / 0.05
Q = 2400
AT THE LEVEL OF OUTPUT WHEN Q is 4800 it will be minimize as it is greater than zero
TR = 1500 + 600Q - 0.06Q2
To maximize
========
MR = dTR / d Q
MR = 600- 0.12Q
FOR THE PROFIT MAXIMIZATION
------------------------------------
MC = MR
0.05Q -120 = 600 - 0.12Q
0.17Q = 720
Q = 4235
NOW FIND THE PROFIT MIAXIMIZATIN
-------------------------------------------
ATR= TR/ Q
ATR = 1500/Q +600 - 0.12 Q
BY putting Q = 4235
ATR = 387

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