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ECO404 Assignment 1 Solution Fall 2018

Case 1:
Adam Milk & Foods (Pvt.) Ltd. is Pakistan’s largest selling cheese brand. Adam has developed its product portfolio over the years and now carries fresh milk, yoghurt, lassi, desi ghee and a wide variety of cheeses. Last year, there emerged some fluctuations in the demand of Butter (X) and Cheese (Y) of Adam’s. Taking into account these demand variations and summer season, firm wants to maximize its profit by the optimal production of both products. Let the total cost and total revenue function of Adam Milk & Foods (Pvt.) Ltd in the year 2017 have been estimated as:
TR=100X-2X
2
TC= XY+7Y2 – 100Y
Requirement:
Keeping in view the above information, find out profit maximizing output levels for both products [Butter (X) and Cheese (Y)] for Adam Milk & Foods (Pvt.) Ltd.
(Marks: 7)
Case 2:
Faisal mover travelers, Inc. offers special tour packages for Northern areas in summer season to increase the revenue of its company. Although its passengers have grown rapidly during recent years, but the company’s management fears that a recent attack of new competitors may severely hinder future growth opportunities. Therefore, it believes that the time has come to make decisions for company’s growth. The marketing and accounting departments have provided management with the following monthly demand and cost information:

P = 400 – 4Q
MR = dTR/dQ = 400 – 8Q
TC = 750 + 25Q
MC = dTC/dQ = 25

Requirement:
From the information given above, calculate the:
A. Quantity, price and profit at the short-run revenue maximizing output level.
B. Quantity, price and profit at the short-run profit-maximizing level of output. (Marking scheme: 4+4)

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