ECO404 VU Assignment No. 2 Spring 2012 Solution

Answer No. 1
MR = MC = 240
Where as MR = MC = P / {1 + (1/E)}

P = MC / {1 + (1/E)}
P = 240 / {1+ (1/-2.5)}
P = 240 / {1+ (-0.4)}
P = 240/ 0.6
P = 400

The optimum level of price that should be set to get the maximum level of higher profit is
400.
Answer No. 2

TC = 10 + 5Q + 15Q2
MC = dTC / dQ
MC = 5 + 30Q
240 = 5 + 30Q
Q = 7.83
Putting the value of Q in equation (2)
(A) TC = 10 + 5Q + 15Q2
TC = Fix Cost + Variable Cost
VC = 5Q + 15Q2 …………………… (2)
VC = 5(7.83) + 15(7.83) 2
VC = 958.78
Variable cost is 958.78
(B) Average Total Cost
ATC = TC / Q
ATC = 10 / 7.83 + 5(7.83) / 7.83 + 15(7.83)2 / 7.83
ATC = 1.28 + 5 + 117.45
ATC = 123.73

(C) Average Variable Cost (AVC)

AVC = VC / Q
AVC = 958.78 / 7.83
AVC = 122.45

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