Econometrics Assignment No 1

MPH 511: ECONOMIC ANALYSIS FOR BUSINESS MPH 511: ECONOMIC ANALYSIS FOR BUSINESS
ASSIGNMENT ONE ASSIGNMENT ONE

SUBMITTED TO:
Prof. Rajenra Pra!a S"re!#"a$ P".D
Master of Philosophy in Management
Faculty of Management
Tribhuvan University
S%&'(##e &):
N(!*"a+ T"a,a
Roll No 14/01
MPhil in Management! TU
A,r(+$ -.1/
PROBLEM 1
"uppose! # $ % $oo& "eller locate' at the university comple( is selling )conometric $oo&* The cost
per boo& of the seller +inclu'ing transport an' other relate' costs, is -.* The firm has other overhea'
an' mar&eting cost /hich is consi'ere' to be fi(e' cost* The marginal cost is -. assuming it is
constant* There is another boo& seller locate' in the same comple(* "o! the manager of #$% $oo&
"eller estimates very high price elasticity of 'eman' for econometric boo&s* The estimate' price
elasticity of boo& is *0* Therefore! the manager of #$% $oo& "eller 'eci'e' to put .-1 mar&2up on
the cost per boo&* 3o you thin& the price 'eci'e' by the manager is optimal4
ANS0ER 1
G(1en (n #"e 2%e!#(on$
%ost per boo& +inclu'ing transport an' other relate' cost, 5 Rs* -.
Marginal %ost +M%, 5 Rs* -.
)stimate' price elasticity of boo& +ep, 5 2 *0
Mar&2up 5 .-1 of costs per boo&
Price per boo& +P, 5 %ost per boo& +16 Mar&2up, 5 Rs* -.+1 6 0*.-, 5 Rs* 1.*7
Here$ A**or(n3 #o Ar* e+a!#(*(#) e'an
Marginal Revenue +MR, 5 P +1 8 ,
9r! -. 5 P +18 ,
9r! P 5 -./0*.
P 5 1.*.-
P = Rs. 127 (roundoff)
Conclusions:
Even though in the absolute figures, the price might not be absolutel optimal, but in roundoff figure, the price
is optimal.
PROBLEM -
!ischal "hapa, #Phil$"%
:
#n #merican company provi'es fertili;ers an' /ee' control la/n services to resi'ential customers of
<agan&hel* =ts seasonal service pac&age! regularly price' at >00! inclu'es several chemical spray
treatments* #s part of an effort to e(pan' its customer?s base! #merican company offere' >00 off its
regular price to customers in the <agan&hel area* Response /as enthusiastic! /ith sales rising to 0-00
units +Pac&age, from the :00 units sol' in the same perio' last year*
a, %alculate the arc price elasticity of 'eman' for #merican company service*
b, #ssume the arc price elasticity +from part #, is the best available estimates of the point price
elasticity of 'eman'* =f marginal cost is > 1:0 per unit for labour an' materials* %alculate
company?s optional mar&up on price an' its optimal price*
ANS0ER -
G(1en (n #"e 2%e!#(on$
Price of each service pac&age +P1, 5 > 00
%hange in Price + P, 5 > 00
Price of ne/ service pac&age +P, 5 00800 5 > 00
@uantity 'eman' before ne/ service pac&age +@1, 5 :00 units
@uantity 'eman' after ne/ service pac&age +@, 5 0-00 units
%hange in @uantity 'eman' + @, 5 000 units
No4$ Ca+*%+a#(on of Ar* Pr(*e E+a!#(*(#) 5e,67
Ae &no/ that! ep 5 B
9r! ep 5 B 5 5 *0
#rc Price )lasticity +ep,5 *0
No4$ *a+*%+a#(on #"e o,#('a+ ,r(*e an 'ar8%,
Cere! Marginal cost +M%, 5 >1:0
Ae &no/ that! at the level of optimal profit! M% is eDual to MR
MR 5 M% 5 > 1:0
#gain!
Ae &no/ that!
MR 5 P +18 ,
9r! 1:0 5 P +18 ,
9ptimal price +P, 5 > 0
4
Therefore!
Price per boo& +P, 5 %ost per boo& +16 Mar&2up,
or >0 5 M% +16Mar&2up1,
or! > 0 5 > 1:0+1 6 Mar&2up1,
Mar& up percentage 5 8 1
Mar& up percentage 5 ..*.-1
Conclusion:
&ence, the compan's optimal price is ( 22) and its optimal mar*up is ++.+7,.
PROBLEM /
#$% %ompany is operating for the last 10 years in Eathman'u Falley* The company /ante' to hire
you as a consultant to 'etermine profit ma(imi;ing output an' price* From the ten years 'ata on the
sales an' price supplie' by the #ccountant of the company you run regression program an' came /ith
the follo/ing 'eman' an' cost functions P5702@ an' a cost function as %51060*0@
* The General
Manager of the company tol' you that the company /as pro'ucing 1.0 units as an optimal Duantity of
pro'uction* Co/ 'o you suggest the General Manager of the company4
0
ANS0ER /
G(1en (n #"e 2%e!#(on$
3eman' functionH P 5 708@
%ost functionH % 5 1060*0 @
General ManagerIs assumption of optimal Duantity of pro'uction +@, 5 10 unit

CereH
Total Revenue +TR, 5 P B @
9r! TR 5 +708@, B @
Revenue functionH R 5 70@ 8@
#gain! /e &no/ that!

Profit +J, 5 TR 8 T%
J 5 +70@ 8@
, 8 +1060*0 @
,
Profit FunctionH J5 8*0@
670@ 810
No/!
MR 5 55 708 4@
an'!
M% 5 55 061@ 5 @
#ccor'ing to the profit ma(imi;ation principle!
M% 5 MR
9r! @ 5 70 8 4@
9ptimal Duantity +@, 5 1K units
Te!#(n3 of re+(a&(+(#) of a&o1e *a+*%+a#(on:
-ondition 1. #t the profit ma(imi;ation level of outputH Marginal profit or 1
st
or'er 'erivative of profit must be
eDual /ith ;ero!
Ta&ing 1
st
or'er 'erivative of profit!
Marginal Profit 5 5 5 80@670
Then! substituting the value of @ 5 1K!
Marginal profit 5 5 80 B1K 6 70 5 0
5 0
-ondition 2. #gain! at the profit ma(imi;ation level of outputH
n'
or'er of 'erivative of profit must be less than
;ero +i*e* negative,!
Ta&ing
n'
L 0
9r! 5 8 L 0
9r! 5 8 L 0
.
9r! 5 8 L 0
9r! 5 84 8 1 L 0
9r! 5 80 L 0
Thus! the first 'erivative or marginal profit is ;ero an' n' or'er 'erivative of the firm is foun' less than ;ero
+i*e* 8 0,* Cence! the optimal Duantity of pro'uction that has profit ma(imi;ation is 1K units*
Conclusion:
/t /0- -ompan, since the 1eneral #anager2s assumption of optimal 3uantit of production (i.e. 124 units) is
not e3ual to the calculated optimal 3uantit (i.e. 15 units)6 hence, the assumption of optimal 3uantit of
production is 7rong.
"herefore the general manager should produce 15 units as an optimal 3uantit of production for profit
ma8imi9ation.
PROBLEM 9
# M*Phil Gra'uate /ante' to starte' a business* Ce estimate' cost an' revenue of the business*
"uppose his cost + % , an' Revenue+ R , functions are given as %5 100 6 0 @
an' R 5 100 @ 8 *0 @
*
fin'M
a, Profit ma(imi;ing output an' price/output combination
b, Ma(imum profit
c, 9ptimal price/output combination if marginal cost of pro'uction is 10@*
ANS0ER 9
G(1en (n #"e 2%e!#(on$
%ost functionH % 5 100 6 0 @
Revenue functionH R 5 100@ 8*0 @
Ae &no/ that!
Revenue +R, 5 Price +P, B @uantity +@,
P B @ 5 @ +100 8 *0 @,
Price functionH P 5 100 8 *0@
J 5 +100@ 8*0 @
,2 +100 6 0 @
,
Profit functionH 5 8-*0@6100@ 8 100
Ae have!
-
Marginal Revenue +MR, 5 5 1008 0@
Marginal %ost +M%, 5 5 50610@ 5 10@
#ccor'ing to profit ma(imi;ation principle! Marginal revenue must be eDual to Marginal cost*
Therefore! M% 5 MR
10@ 5 100 8 0@
9ptimal Duantity +@, 5 10 units
Condition 1:
#t profit ma(imi;ing level of outputH Marginal profit or 1
st
or'er 'erivative of profit must be eDual /ith ;ero!
Ta&ing 1
st
Marginal Profit +MP, 5 5 5 810@6100
"ubstituting the value of @ +5 10, then /e get!
5 810 B 10 6 100
5 0
-ondition 2.
#gain! at profit ma(imi;ing level of outputH
n'
or'er of 'erivative of profit must be less than ;ero +i*e*
negative,!
Ta&ing
n'
L 0
9r! 5 L0
9r! 5 L 0
9r! 5 810L 0
Thus! the first 'erivative or marginal profit an' n' or'er 'erivatives of the firm are foun' ;ero an' L 0 i*e* 8 10
respectively* Therefore! the profit ma(imi;ing optimal Duantity of pro'uction is 10 units*
No/! substituting the value of @ +5 10 units, in price function! revenue function an' cost function! /e get
P 5 100 8 *0 B10
9ptimal price +P, 5 Rs* 10
No/! Total Revenue +TR, 5 P B @ 5 Rs* 10 B10 5 Rs* 100
Total %ost +T%, 5 100 6 0 B 10

5Rs*.00
No/! Ma(imum profit 5 TR 8T%
K
Ma(imum profit 5 Rs*100 8Rs* .00 5 Rs* .00
Conclusion:
"herefore, the ma8imum profit that can be earned is Rs. +)4 b producing 14 units of output.
PROBLEM 5
Aith the launching of M*Phil Program of Faculty of Management! a term of gra'uate stu'ents /ante'
to start a $oo& "tall close to M*Phil buil'ing* There are only 0 stu'ents in the M*Phil Program* The
estimate' 'eman' of boo& at 'ifferent levels of price is given belo/M
$oo&s +in
No*,
0 10 10 1- 1K 0
Price +Rs*, 1000 100 1000 K00 000 400
The cost function is assume' to be T%5 % 5 100 6 0 @
* "uppose the $oo& "tall is only selling the

boo&s relate' to )conomic #nalysis for $usiness* #t /hat level of boo& sale the $oo& "tall ma(imi;es
its profit an' /hat is the price output combination to the "tall* +NoteM Formulas for obtaining the value
N+constant, an' O +coefficient, are
O 5
respectively or it can be solve' by using t/o simultaneous eDuations as
PQ
i
5 nN 6 O PR
i
an' PR
i
P Q
i
5 N PR
i
6 O +PR
i
,
Ahat /ill happen if cost function %hange' to T% 5 100 6 10 @
*
ANS0ER 5
G(1en (n #"e 2%e!#(on
Cere!
Boo8!5:6 Pr(*e5Y6 :Y :
-
0 1!000 -!000 0
10 1!00 1!000 100
10 1!000 10!000 0
1- K00 1:!.00 K7
1K 000 7!000 :4
7
0 400 K!000 400
:; <5 Y; 5$9.. :Y;=5$1.. :
-
;1$/=/
; 5 19.1> ; 5 ?..
; ;
; @>1.>>
#gain!
5 @
5 7008 +2-1*--, 14*1-
5 171-
Ae have regression eDuation of
Q 5 N 6OR
Price functionH P 5 171- 8 -1*--@
Revenue FunctionH R 5 P B @ 5 171- @ 8-1*--@
Marginal revenue! MR 5 5 171-8 14:*04@

%ost functionH % 5 100 6 0@
Marginal cost! M% 5 5 0610@

J 5 TR 8T% 5 +171- @ 8-1*-- @
, 8 +100 6 0@
, 5 171- @ 8 -.*-- @
8 100
#ccor'ing to profit ma(imi;ation principle!
Marginal revenue must be eDual to Marginal cost*
Therefore! M% 5 MR
10 @ 5 171- 8 14:*04 @
9ptimal Duantities +@, 5 1*47 units
5 1: unit +appro(imately ,
Condition 1
#t profit ma(imi;ing level of outputH
Marginal profit or 1
st
Ta&ing 1
st
Marginal Profit 5 5 5171- 8 10:*00@
"ubstituting the value of @ 5 1*4K then /e get!
5 171- 8 10:*00 B 1*4K 5 0
10
Condition 2:
#gain! at profit ma(imi;ing level of outputH
n'
or'er of 'erivative of profit must be less than ;ero +i*e*
negative,!
Ta&ing
n'
9r! 5 8
9r! 5 814:*00 8 10
9r! 5 810:*00 L 0
Thus! the first or'er 'erivative or marginal profit an' n' or'er 'erivatives of the firm are foun' ;ero an' L 0
+i*e* 8 10:, respectively* Cence! the profit ma(imi;ing optimal Duantity of pro'uction is 1: units*
No/ substituting the value of @ +51*4K, in price! revenue an' costs an' profit function! /e get
P 5 171- 8 -1*-- B 10
9ptimal price +P, 5 Rs* 100
Total Revenue +TR, 5 P B @ 5 1*4K B 100 5Rs* 147-.
Total cost +T%, 5 100 6 0@
5 100 6 0 B +1*4K,
5 Rs* K-K*-0
Total profit +J, 5 TR 8T% 5 Rs* 147-. 8 Rs* K-K*-0 5 Rs* 1407-*0
Conclusion:
&ere profit can be ma8imi9ed up to Rs. 1:4;7.2) b producing 1< units of output.
PROBLEM =
<et the 'eman' facing a firm for its pro'uct be e(presse' by the follo/ing functions @ 5 0 2 0*0 P
+Ahere @ 5 Duantity an' P 5 Price,! an' cost function as % 5 0 8 @ 6 4 @
* %ompute +a, profit

ma(imi;ing output! +b, Sustify profit ma(imi;ing output*
11
ANS0ER =
G(1en (n #"e 2%e!#(on$
3eman' functionH @ 5 080*0 P
9r! 3eman' functionH P 5 00 8 @
%ost functionH % 5 0 8 @ 6 4@
Revenue functionH R 5 P B @ 5 +00 8 @, B @ 5 00@ 8 @
#gain! Marginal Revenue +MR, 5 5 5 00 8 4@

#gain! Marginal %ost +M%, 5 5 5 8 6 K@
9r! J 5 00@ 8@
8+0 8 @ 64@
,
Profit! J 5 0@ 8.@
80
Therefore! M% 5 MR
9r! 8 6K@ 5 00 84@
@ 5 unit 5 4*:: units 5 0 units +apro(,
Condition 1:
Marginal profit or 1
st
Ta&ing 1
st
MP 5 5 5 0 8 1 @
=f @ 5 then!
5 0 8 1 B 5 0
Condition 2:
n'
or'er of 'erivative of profit must be less than ;ero!
Ta&ing
n'
9r! 5 8
9r! 5 8
9r! 5 84 8 K
9r! 5 81 L 0
Con*+%!(on:
1
The first or'er 'erivative or marginal profit an' n' or'er 'erivatives of profit are foun' ;ero an' L 0 i*e* 8 1
respectively* Cence! the profit ma(imi;ing optimal Duantity of pro'uction is 1:/: units*
No/ substituting the value of @ +51:/:, in Profit function! /e get
9ptimal profit! J 5 0@ 8 .@

8 0
9r! J 5 0 B 8 . B B 80
J 5 Rs* K-*..
Un'er the given con'ition! optimal profit is Rs* K-*..*
PROBLEM >
# manufacturing company is operating in Eathman'u valley /ith the 'eman' function given as P 5 40
8 @! an' total cost function as % 5 @
6 K @ 6 *
=f the company /ante' to ma(imi;e profit /hat is the price combination an' the total profit an'
revenue4 The management of the company reali;es the nee' for capturing mar&et* Therefore! it starte'
to promote its pro'uct /ith the strategy of sales revenue ma(imi;ation instea' of profit ma(imi;ation*
Ahat /ill be the price output combination an' total profit un'er the con'ition of sales revenue
ma(imi;ation4
The sharehol'ers of the company 'i' not li&e mar&et share capture strategy +sales revenue
ma(imi;ation, follo/e' by the management* The sharehol'ers shoe' strong 'issatisfaction against the
management in its #nnual General Meeting +#GM,* They argue' that management shoul' not be
given opportunities for free play in the company* The sharehol'er? meeting consensually 'eci'e' to
1:
put restriction /ith minimum profit of Rs* 10* Un'er this con'ition! /hat is the optimum price +P,
output +@, combination an' total revenue4
ANS0ER >
G(1en (n #"e 2%e!#(on$
3eman' functionH P 5 40 8 @
%ost functionH % 5 @
6K@ 6
Revenue FunctionH R 5 P B @ 5 +40 8 @ , B @ 5 40@ 8 @
Ae have!
Marginal Revenue +MR, 5 5 5 40 8 @
Marginal %ost +M%, 5 5 5 @ 6 K
J 5 TR 8 T%
9r! J 5 40@ 8 @

8 +@
6 K@ 6 ,
J 5 : @ 8 @

8 K
Ca!e .1: Prof(# 'aA('(Ba#(on
Therefore! M% 5 MR
40 8 @ 5 @ 6 K
@ 5 K units
-ondition 1. #t profit ma(imi;ing level of outputH Marginal profit or 1
st
or'er 'erivative of profit must be eDual
to ;ero!
Ta&ing 1
st
Marginal Profit +MP, 5 5 5: 8 4@
=f @ 5 K unit! then!
5 : 8 4 B K5 0
-ondition 2.
n'
or'er of 'erivative of profit must be less than ;ero +i*e* negative,!
Ta&ing
n'
5 8
5 8
5 8 8 K
14
5 810 L 0
Con*+%!(on:
The first or'er 'erivative or marginal profit an' n' or'er 'erivatives of the profit are foun' ;ero an' L 0 i*e* 8
10 respectively* Cence! the profit ma(imi;ing optimal Duantity of pro'uction is K units* No/! substituting the
value of @ +5 K units, in Price Function! Revenue Function! %ost function an' Profit Function! /e get
P 5 408K
9ptimal price +P, 5 Rs* :
Total Revenue +TR, 5 P B @ 5 Rs* : B K 5 Rs* 0.
Total %ost +T%, 5 @
6 K@ 6
T% 5 K
6K(K 6
Total %ost 5 Rs* 1:0
#n'! 9ptimal profit 5 TR 8T%
9ptimal profit 5 Rs*0. 8Rs* 1:0 5 Rs* 1.*00
Ca!e .-: Sa+e! Re1en%e 'aA('(Ba#(on
#ccor'ing principle of sales revenue ma(imi;ationH Marginal Revenue +MR, 5 0
MR 5 40 8 @ 5 0
9utput +@, 5 0 units
No/!
Price +P, 5 40 8 @
9r! P 5 40 80 5 0
Price at sales ma(imi;ing output +P, 5 Rs*0
Total revenue +TR, 5 P B @
TR 5 0 B 0
TR 5 Rs*400
Total %ost +T%, 5 @
6 K@ 6
T% 5 0
6 K B 0 6
T% 5 Rs* .
Total Profit +J, 5 TR 8 T%
J 5 400 8 0. 5 8 Rs* 1.
Ca!e ./: Sa+e! Re1en%e MaA('(Ba#(on 4(#" Con!#ra(n# of Prof(# A'o%n# of R!. 1.
Profit +J, 5 TR 8 T% 5 10
10
J 5 :@ 8@
8K510
9r! 2@
6: @ 21K 5 0
Using Dua'ric eDuation!
a 5 2! b 5 : an' c 5 21K
or! @ 5
or! @ 5
or! @ 5
Ta&ing positive value!
or! @ 5
or! @ 5 0*0K units
Ta&ing negative value
@ 5
@ 5 10*4 units 5 1. units
Con*+%!(onM
"ales ma(imi;ing output /ith profit constraint of Rs* 10 is 10*4 units
No/! "ubstitute the value of @ +5 10*4, in price eDuation to calculate price!
Price +P, 5 40 8 @ 5 40 810*4 5 Rs*4*0K
TR 5 4*0K B 10*4
TR 5 Rs*:-7*0
Total %ost +T%, 5 @
6 K@ 6
T% 5 +10*4,

6 K B 10*4 6
T% 5 Rs* :.:*14
Total Profit +, 5 TR 8 T%
J 5 :-7*0 8:.:*14 5Rs* 10*KK
1.
PROBLEM <
# company 'evelope' be a group of M* Phil Gra'uates is facing /ith follo/ing 'eman' an' cost
functionsM P 5 00 2 0*0@ +3eman' function, % 5 1*0 @
60 @ 6 10 +%ost function,! /here! @ 5

Duantity in thousan's of unit! an' P 5 Price in Rupees! % 5 Total cost*
The gra'uates /ante' to set the obTective of the company* Therefore! they con'ucte' a brainstorming
session* =n the session! certain group of gra'uates put for/ar'e' profit ma(imi;ation as an obTective of
the company /hile other group argue' in favour of revenue ma(imi;ation as obTective of the company*
"imilarly! agroup of gra'uates /ante' to have revenue ma(imi;ation /ith a minimum profit of Rs* 0*
=n this situation! they /ante' to use their &no/le'ge gaine' from the course entile' U)conomic
#nalysis for $usinessV* Ahat is the process they /ill use for 'etermining price output combination an'
/hat is the price output combination inclu'ing total profit an' revenue base' on the above 'eman' an'
cost functions un'er 'ifferent con'itions4
ANS0ER <
G(1en (n #"e 2%e!#(on$
3eman' functionH P 5 00 8 0*00 @
%ost FunctionH % 5 1*0 @
6 0@ 6 10
Revenue FunctionH R 5 P B @ 5 00@ 8 0*00@

9r! J 5 8 @
6 40 @ 8 10
Minimum Profit 5 Rs*0
Marginal Revenue +MR, 5 5 5 00 8 @
Marginal Revenue +M%, 5 5 5 : @ 6 0
Therefore! M% 5 MR
MR8 M% 5 0
9r! 00 8 @ 8 +: @ 60, 5 0
@ 5 11*0 unit
1-
st
to ;ero!
Ta&ing 1
st
Marginal Profit 5 5 5 40 8 4@
=f @ 5 11*0 then!
5 40 8 4 B 11*0 5 0
-ondition 2.
n'
Ta&ing
n'
5 40 8 4@
5 5 2 4 W0
Con*+%!(on:
The first or'er 'erivative or marginal profit an'
n'
or'er 'erivatives of the firm are foun' ;ero an' L 0 i*e* 8 4
respectively* Cence! the profit ma(imi;ing optimal Duantity of pro'uction is 11*0 units*
No/! substituting the value of @ +5 11*0 units, in Price Function! Revenue Function %ost function an' Profit
Function! /e get
Price +P, 5 00 8 0*00 @ 5 00 8 0*00 B 11*0 5Rs* 44*:-
Total revenue +TR, 5 00 @ 8 0*00 @

TR 5 00 B 11*0 8 0*00 B +11*0,

TR 5 Rs*0.*0 8 Rs* .:*K 5 Rs* 477*
Total %ost +T%, 5 1*0 @
6 0@ 6 10
T% 5 1*0 B +11*0,
6 0 B 11*0 610
T% 5 1K7*K4 6 0.*0 6 10 5 Rs* 0.*07
J 5 477* 8 0.*07 5 Rs* 4:*1:
Ca!e .-: Sa+e! Re1en%e MaA('(Ba#(on
MR 5 00 8 @ 5 0
1K
No/!
Price +P, 5 P 5 00 8 0*00 @
or! P 5 00 8 0*0 B 00 5 0
Price at sales ma(imi;ation output +P, 5 Rs*0
TR 5 0 B 00
Total Revenue 5 Rs*100
Total %ost +T%, 5 1*0 @
6 0@ 6 10
T% 5 1*0 B 00
6 0 B 00 6 10
T% 5 Rs* 4010
J 5 100 8 4010 5 8Rs* -.0
Ca!e ./: Sa+e! Re1en%e MaA('(Ba#(on 4(#" Con!#ra(n# of Prof(# A'o%n# of R!. -.
#t minimum level of profit of Rs*0H
Total Profit +J, 5 TR 8 T% 5 Rs* 0
9r! 00 @ 8 0*00 @
8 +1*0 @
6 0 @ 6 10, 5 0
9r! 8 @
6 40 @ 8 :0 5 0
Using Dua'ric eDuation formula!
a 5 2! b 5 40 an' c 5 2:0
9r! @ 5
9r! @ 5
9r! @ 5
Ta&ing positive sign!
9r! @ 5
9r! @ 5 0*.K-0 units
Ta&ing negative sign!
9r! @ 5
9r! @ 5 1*K1 units 5 units +apro(,
Con*+%!(on!:
The reDuire' Duantity of output is 1*K1 units
No/! Price +P, 5 P 5 00 8 0*00 @
or! P 5 00 8 0*0 B 1*K15 :7*07
17
Price at sales ma(imi;ation output +P, 5 Rs*:7*07
TR 5 :7*07 B 1*K1
Total Revenue 5 Rs*K0*.:
Total %ost +T%, 5 1*0 @
6 0@ 6 10
T% 5 1*0 B 1*K1
60 B 1*K16 10
T% 5 Rs* K:*0.
Total Profit +, 5 TR 8 T%
J 5 K0*.: 8 K:*0.*00 5 Rs* 0*0.
From the above computation! the 1
st
case of profit ma(imi;ation has an optimum output of 11*0 units an'
optimal price of Rs*44*:- that generate the total revenue! total cost an' profit of Rs* 477*! Rs* 0.*07 an' Rs*
4:*1: respectively*
The
n'
con'ition of sales revenue ma(imi;ation has an optimal output of 00 units an' optimal price of Rs* 0
that generate the Total Revenue an' Total %ost are Rs* 100 an' Rs* 4010 respectively* $ut there is loss of
Rs*-.0*
The :
r'
con'ition of sales revenue ma(imi;ation /ith constraint of profit of Rs*0! the optimum output is 1*K1
units an' optimal price is Rs* :7*07 that shoul' generate the total revenue an' the total cost at the level of output
are Rs*K0*.: an' Rs*K:*0. respectively*

#s! the profit ma(imi;ation con'ition generates highest profit /ith lo/est sales! the best approach is profit
ma(imi;ation approach*
PROBLEM ?
# group of stu'ents starte' a business /ith a vie/ to create employment for themselves* Their 'eman'
an' cost functions of their pro'uct are as follo/sM
P 5 -0 8 1*0 @ +3eman' function,
% 5 :@
6 10 @ 6 :0 +%ost function,
Ahere! @ 5 Duantity in thousan' of unit! an'
P 5 Price in Rupees! % 5 Total cost*
Fin' the price! total revenue! total cost an' total profit of the group un'er the obTective ofM
0
+a, Profit ma(imi;ation!
+b, "ales revenue ma(imi;ation! an'
+c, "ales revenue ma(imi;ation /ith a minimum profit of Rs* :0*
ANS0ER ?
G(1en (n #"e 2%e!#(on$
3eman' functionH P 5 -0 8 1*00 @
%ost FunctionH % 5 : @
6 10@ 6 :0
Revenue FunctionH R 5 P ( @ 5 -0@ 21*00@

9r! J 5 +-0@ 81*00@
, 8 + : @
6 10@ 6 :0,
9r! J 5 24*0@
6.0 @ 2:0
Minimum Profit 5 Rs :0
Marginal Revenue +MR, 5 5 5 -0 8 :@
Marginal Revenue +M%, 5 5 5 . @ 610
Therefore! M% 5 MR
MR8 M% 5 0
9r! -0 8 :@ 8 +. @ 610, 5 0
9ptimal output +@, 5 .*.- unit
st
to ;ero!
Ta&ing 1
st
Marginal Profit 5 5 5 8 7 @ 6.0
=f @ 5 .*.- then!
5 87 ( .*.- 6 .05 0
-ondition 2.
n'
Ta&ing
n'
9r! 5 8 7 @ 6.0
1
9r! 5 5 2 7
Con*+%!(on:
The first or'er 'erivative or marginal profit an'
n'
or'er 'erivatives of the profit are foun' ;ero an' L 0 i*e* 8 7
respectively* Cence! the profit ma(imi;ing optimal Duantity of pro'uction is .*.- units*
No/! substituting the value of @ +5 .*.- units, in Price function! Revenue function an' %ost function! /e get
Price +P, 5 -0 8 1*0 B .*.- 5 Rs* .0
Total revenue +TR, 5 -0@ 21*00@
TR 5 -0 B .*.- 8 1*00 B +.*.-,

TR 5 Rs* 4::*0
Total %ost +T%, 5 : @
6 10@ 6 :0
T% 5 : B +.*.-, 610 B .*.- 6:0
T% 5 .:*0
J 5 4::*0 8 .:*0 5 1-0*00
From the above computation! at the level of the profit ma(imi;ation! the firm has an optimum output is .*.-
units an' optimal price is Rs*.0 that shoul' generate the total revenue! total cost an' amount of profit are Rs*
4::*0! Rs* .:*0 an' Rs* 1-0*00 respectively*
Ca!e .-: Sa+e! 'aA('(Ba#(on
MR 5 -0 8 :@ 5 0
Price +P, 5 -0 8 1*0 B 0 5:-*0
TR 5 :-*0 B 0
TR 5 Rs*7:-*00
6 10@ 6 :0
T% 5 : B +0, 610 B 0 6:0

T% 5 K0
J 5 7:-*00 8 K0 5 8 1:4*00
#t the level of sales revenue ma(imi;ation! the firm has an optimal output of 0 units an' optimal price of Rs*
:-*0 that generate the total revenue an' total cost of Rs* 7:-*00 an' Rs* K0 respectively* $ut there is loss of
Rs*1:4*00*
Ca!e ./: Sa+e! 'aA('(Ba#(on 4(#" *on!#ra(n# of ,rof(# a'o%n# of R!. /.
/t minimum level of profit of Rs.<46
Total Profit +J, 5 TR 8 T% 5 Rs* :0
9r! 2 4*0@
6 .0 @ 8 :0 5 :0
9r! 2 4*0@
6 .0 @ 8 .0 5 0
9r! 0*:@
8 4 @ 6 4 5 0
Using Dua'ric eDuation formula!
a 5 0*:! b 5 8 4 an' c 5 4
9r! @ 5
9r! @ 5
9r! @ 5
Ta&ing positive sign!
9r! @ 5
9r! @ 5 1*0 units
Ta&ing negative sign!
9r! @ 5
9r! @ 5 1*0K units
Cence! the reDuire' Duantity of output is 1*0 units
Price +P, 5 -0 8 1*0 @ 5 -0 81*0 B 1*0 5 0.*.0 5 Rs* 0.*.:
TR 5 0.*.0 B 1*0
TR 5 Rs*.7:*.0. 5Rs* .7:*..
6 10@ 6 :0
:
T% 5 : B +1*0,

6 10 B 1*0 6:0
T% 5 ..:*7:K 5 Rs*..:*74
J 5 .7:*.. 8 ..:*74 5 Rs*7*-
Con*+%!(on:
#t the level of sales revenue ma(imi;ation /ith profit constraint of Rs*0! the firm has the optimum output of
1*0 units an' optimal price is Rs* 0.*.: that generate the Total Revenue an' the Total %ost are Rs*.7:*.. an'
Rs*..:*74 respectively*
PROBLEM 1.
The past recor's of price an' sales of shirt at 'ifferent points of time are as follo/sM
Price +Rs*, 100 10 1:0 10 1.0 100
"ales +No*, 40 :K 4: 40 0 :0
From the above recor's of prices an' sales of shirts! calculate profit ma(imi;ing number of shirt an'
price inclu'ing total revenue an' profit! given the cost function of % 5 :@
6 10 @ 6 :0* Ahat /ill

happen in Duantity 'eman' /hen price increase' at Rs* 1K0 an' elasticity of 'eman'4 )stimate ne/
function relationship an' its price output combination4 =nterpret your results*
ANS0ER 1.
G(1en (n #"e 2%e!#(on$
Cere!
Sa+e! No!. 5:6 Pr(*e 5Y6 :Y :
-
40 100 4000 1.00
:K 10 40.0 1444
4: 1:0 0070 1K47
40 10 0400 00
:- 1.0 070 1:.7
4: 100 .400 1K47
:; -9= Y; ><. :Y; /1?-. :
-
5 1.1/-
; 5 41
4
; ; 5 1:0
RQ 5 :170
R
5 101:
;
;
; 8 1*:04:
#gain!
5 @
5 1:08 +21*:04:, 41
5 1K:*4-.: 5 1K:*4K
No/! Price functionH P 5 1K:*4K 8 1*:04: @
Revenue FunctionH R 5 P B @ 5 1K:*4K @ 81*:04: @
#gain! MR 5 5 1K:*4K8 *.0K. @

%ost functionH % 5 :@
610@ 6:0
#gain! M% 5 5 .@ 610
J 5 TR 8 T%
J 5 +1K:*4K @ 81*:04:@
, 8 +:@
610@ 6:0,
J 5 8 4*:04: @
6 1.K*4K@ 8 :0
Therefore! M% 5 MR
.@ 610 5 1K:*4K8 *.0K. @
K*.0K. @ 5 1.K*4K
9ptimal Duantity +@, 5 17*0- units 5 0 units +appro(,
st
to ;ero!
Ta&ing 1
st
Marginal Profit 5 5 5 8 K*.0K. @ 6 1.K*4K
=f @ 5 17*0- then!
5 8 K*.0K. ( 17*0-61.K*4K 5 0
0
-ondition 2.
n'
Ta&ing
n'
n'
or'er 'erivative! L 0
5 8 K*.0K. @ 6 1.K*4K
5 5 8 K*.0K.
Thus! the first or'er 'erivative or marginal profit an'
n'
or'er 'erivatives of the firm are foun' ;ero an' L 0 i*e*
8 K*.0K. respectively* Cence! the profit ma(imi;ing optimal Duantity of pro'uction is 17*0- units*
No/! substituting the value of @ +5 17*0- units, in Price function! Revenue function an' %ost function! /e get
#gain! P 5 1K:*4K 8 1*:04: B 17*0-
9ptimal price +P, 5 Rs* 10-*70
TR 5 10-*70 B 17*0-
TR 5 Rs* :071*0K
Total %ost +T%, 5 :@
610@ 6 :0
T% 5 : B +17*0-,

6 10 B 17*0- 6 :0
T% 5 Rs* 14-*00
J 5 :071*0K 814-*00 5 Rs*1.1K*0K
EA,+ana#(on:
#t the profit ma(imi;ing obTective! the firmIs optimum output is 17*0- units an' optimal price is Rs* 10-*70 that
generates the total revenue! the total cost an' optimal profit of Rs*:071*0K! Rs*14-*00 an' 1.1K*0K
respectively*
.
A Ca!e of 0r) I!+an
CID In(#(a+ E2%(+(&r(%'
=nitial )Duilibrium +for 7 /or&ers from Farm #! $ an' %,
Ta&+e 1.1
Total Physical Pro'uct +TPP,! Marginal Physical Pro'uct +MPP,! Marginal Revenue Pro'uct +MPR, of Ary =slan' Farm
Un(# of
+a&o%r
Far' A Far' B Far' C
TPP
R)e
MPP
R)e
MRP R)e E
F9
RPP
R)e
MPP
R)e
MRP R)e E
F9
TPP
R)e
MPP R)e
MRP R)e
E F9
0 0 0 > 202 0 0 > 202 0 0 > 202
1 400 400 > 1!.00 .-0 .-0 > !-00 :00 :00 > 1!400
-0 :0 F 1$/.. 100 0-0 > !:00 .-0 :0 F 1$/..
: 1000 -0 > 1!100 1-0 4-0 > 1!700 7-0 :00 > 1!00
4 10 0 > 700 10 400 > 1!.00 100 -0 > 1!100
0 140 00 > K00 400 :0 F 1$/.. 1000 00 > 1!000
. 1.00 1-0 > -00 -0 -0 > 1!100 1-0 0 > 700
- 1-00 100 > .00 700 0 > 700 170 00 > K00
K 1K-0 10 > 000 :100 00 > K00 100 1-0 > -00
7 17-0 100 > 400 ::0 1-0 > -00 00 100 > .00
10 000 -0 > :00 :4-0 100 > .00 :-0 10 > 000
Ta&+e 1.-
#llocation of Resources an' 3istribution of =ncome
Units %omputation Rye only X >4 per bu* 7 /or&er
Aages rate > > 1!:00
Farm #M
Aor&ers No*
Rent > -0B>4 8 B>1:00 > :00
Farm $M
Aor&ers No* 0
Rent > 400B>4 8 0B>1:00 > :!:00
Farm %M
Aor&ers No*
Rent > .-0B>4 8 B>1:00 > 100
Farm 3M
Aor&ers No* 8
Rent X > 8
Total /ages bill +# 6 $ 6 % 6 3, 7 B > 1:00 > 11!-00
Total rent > :00 6 > ::00 6 > 100 > :!-00
Total Farm income +/ages Y rent, > 10!400
Total value of Farm +P B @, > 4 B :K00 > 10!400
Con*+%!(on!M
9ut of 7 labourers! /or& in Farm Z#?! 0 /or& in Farm Z$? an' /or& in Farm Z%?* The eDuilibrium /ages rate of all
Farms is > 1:00* The rent earne' by Farm Z#?! Farm Z$? an' Farm Z%? are > :00! > :!:00 an' >100 respectively being total
of > :!-00*
CIID Inf+a#(on
=n case of inflation! the price of rye rises to >40 per bushel* Therefore! at the ne/ eDuilibrium! MRP +5 the /age rate, /ill
be >1:000* The number of laborers an' rent earne' on various farms are as follo/sM
Ta&+e -.1
-
Un(# of
+a&o%r
TPP
R)e
MPP
R)e
MRP R)e E
F9.
RPP R)e MPP R)e
MRP R)e
E F9.
TPP R)e MPP R)e
MRP R)e E
F9.
1 400 400 > 1.!000 .-0 .-0 > -!000 :00 :00 > 14!000
-0 :0 F 1/$... 100 0-0 > :!000 .-0 :0 F 1/$...
: 1000 -0 > 11!000 1-0 4-0 > 17!000 7-0 :00 > 1!000
4 10 0 > 7!000 10 400 > 1.!000 100 -0 > 11!000
0 140 00 > K!000 400 :0 F 1/$... 1000 00 > 10!000
. 1.00 1-0 > -!000 -0 -0 > 11!000 1-0 0 > 7!000
- 1-00 100 > .!000 700 0 > 7!000 170 00 > K!000
K 1K-0 10 > 0!000 :100 00 > K!000 100 1-0 > -!000
7 17-0 100 > 4!000 ::0 1-0 > -!000 00 100 > .!000
10 000 -0 > :!000 :4-0 100 > .!000 :-0 10 > 0!000
Ta&+e -.-
Units %omputations Rye only X >40 per bu* 7 /or&er
Aages rate > > 1:!000
Farm #M
Aor&ers No*
Rent > -0B>40 8 B>1:00 > :!000
Farm $M
Aor&ers No* 0
Rent > 400B>40 8 0B>1:00 > ::!000
Farm %M
Aor&ers No*
Rent > > 1!000
Farm 3M
Aor&ers No* 8
Rent > 8
Total /ages bill +# 6 $ 6 % 6 3, 7 B >1:00 > 11-!000
Total rent > :000 6 > ::000 6 > 1000 > :-!000
Total Farm income +/ages Y rent, > 104!000
Total value of Farm +P B @, :K00 B > 40 > 104!000
Con*+%!(on!:
$ecause of inflation! the price of rye an' /age rate increase' simultaneously* =n the same /ay! the marginal revenue to
the Farm an' /ages to labourers also increase'*
Aith the rise in prices! the purchasing po/er of consumers 'ecreases* $ut the inflation has also increase' the revenue to
the farmers an' /ages to the labourers! their stan'ar' of living /ill be unchange'*
=f the prices of the goo's bought by Ary =slan'ers rise eleven fol' +or nine fol',! the revenue an' /age rate also change
proportionately* =n the same /ay! the stan'ar' of living /ill be unchange'*
=n general inflation! /ith increase in price level! revenue 'oes not increase proportionately* #s such! the living stan'ar'
/ill be 'ecrease'*
Therefore uneven rise in price affect the /age rate an' rent earne' on the farms*
CIIID Gro4#" of Fa*#or In,%#! 5a6
K
=n case of a''ing ne/ labourers in Ary =slan'! the total number of labourers /ill increase causing increase in supply of
labour* Aith 0 labourers! the ne/ eDuilibrium /age rate /ill be >K00*
Ta&+e /.15a6
Un(# of
+a&o%r
TPP
R)e
MPP
R)e
MRP R)e E
F9
RPP
R)e
MPP
R)e
MRP R)e E
F9
TPP
R)e
MPP R)e
MRP R)e
E F9
0 0 0 > 202 0 0 > 202 0 0 > 202
1 400 400 > 1!.00 .-0 .-0 > !-00 :00 :00 > 1!400
-0 :0 > 1!:00 100 0-0 > !:00 .-0 :0 > 1!:00
: 1000 -0 > 1!100 1-0 4-0 > 1!700 7-0 :00 > 1!00
4 10 0 > 700 10 400 > 1!.00 100 -0 > 1!100
0 140 00 F <.. 400 :0 > 1!:00 1000 00 > 1!000
. 1.00 1-0 > -00 -0 -0 > 1!100 1-0 0 > 700
- 1-00 100 > .00 700 0 > 700 170 00 F <..
K 1K-0 10 > 000 :100 00 F <.. 100 1-0 > -00
7 17-0 100 > 400 ::0 1-0 > -00 00 100 > .00
10 000 -0 > :00 :4-0 100 > .00 :-0 10 > 000
Ta&+e /.-5a6
Units %omputations Rye only X >4*00 per bu* 0 /or&er
Aages rate > > K00
Farm #M
Aor&ers No* 0
Rent > 140B>4 8 0B>K00 > 1!-00
Farm $M
Aor&ers No* K
Rent > :100B>4 8 KB>K00 > .!00
Farm %M
Aor&ers No* -
Rent > 170B>4 8 -B>K00 > !100
Farm 3M
Aor&ers No* 8
Rent > > 202
Total /ages bill +# 6 $ 6 % 6 3, 0 B > K00 > 1.!000
Total rent > 1-00 6 > .00 6 > 100 > 10!000
Total Farm income +/ages Y rent, > .!000
Total value of Farm +P B @, .000 B > 4 > .!000
Con*+%!(on!:
Aith increase in supply of labour! the /age rate has 'ecrease' to >K00* Co/ever! the total /age income has increase' from
> 11-00 to > 1.!000* The total rent income also increase' from > :-00 to > 10!000! labourersI share of income is .1*041 +>
1.!000/> .!000,! an' total income is > .!000*
CIIID Gro4#" of Fa*#or In,%#! 5&6
7
Ahen one of the sailors! name' 3alta! turne' into gentle /o+men,! the total number of laborers 'ecrease' to 17* The ne/
eDuilibrium /age rate of the 17 laborers is > 1100*
Ta&+e /.15&6
Un(#
of
+a&o%r
Far' A Far' B Far' C Far' D
TPP
R)e
MPP
R)e
MRP R)e
E F9
RPP
R)e
MPP
R)e
MRP R)e
E F9
TPP
R)e
MPP
R)e
MRP
R)e E F9
TPP
R)e
MPP
R)e
MRP R)e
E F9
0 0 0 > 202 0 0 > 202 0 0 > 202 0 0 > 202
1 400 400 1!.00 .-0 .-0 !-00 :00 :00 1!400 .-0 .-0 !-00
-0 :0 1!:00 100 0-0 !:00 .-0 :0 1!:00 100 0-0 !:00
: 1000 -0 1$1.. 1-0 4-0 1!700 7-0 :00 1!00 1-0 1-0 1!700
4 10 0 700 10 400 1!.00 100 -0 1$1.. 10 400 1!.00
0 140 00 K00 400 :0 1!:00 1000 00 1!000 400 :0 1!:00
. 1.00 1-0 -00 -0 -0 1$1.. 1-0 0 700 -0 -0 1$1..
- 1-00 100 .00 700 0 700 170 00 K00 700 0 700
K 1K-0 10 000 :100 00 K00 100 1-0 -00 :100 00 K00
7 17-0 100 400 ::0 1-0 -00 00 100 .00 ::0 1-0 -00
10 000 -0 :00 :4-0 100 .00 :-0 10 000 :4-0 100 .00
Ta&+e /.-5&6
Units %omputation Rye only X >4 per bu* 17 /or&er
Aages rate > > 1!100
Farm #M
Aor&ers No* :
Rent > +1000 B > 4 8 : B > 1100, > -00
Farm $M
Aor&ers No* .
Rent > +-0 B > 4 8 . B > 1100, > 4!:00
Farm %M
Aor&ers No* 4
Rent > +100 B > 4 8 4 B > 1100, > .00
Farm 3M
Aor&ers No* .
Rent > +-0 B > 4 8 . B > 1100, > 4!:00
Total /ages bill +# 6 $ 6 % 6 3, 17 B > 1100 > 0!700
Total rent > -00 6 > 4:00 6 > .00 > 7!700
Total Farm income +/ages Y rent, > :0!K00
Total value of Farm +P B @, --00 B > 4 > :0!K00
Con*+%!(on!:
Aith 17 laborers! the total value of output increase' from > .!000 to >:0!K00! /age rate also increase' from >K00 to
>1!100* "imilarly! the total /ages also increase' from >1.!000 to X0!700* Co/ever! the total rent 'ecrease' from >10!000
to >7!700*
CIIID Gro4#" of Fa*#or In,%#! 5*6
:0
#ccor'ing to Malthus an' Ricar'o?s Theory of Rent! /ith the population gro/th! the supply in labor also increases* $ut the
other factor of pro'uction 8 technology an' capital stoc&8remains constant* Though! increase in labour increases
pro'uction! but it 'ecreases at some level of pro'uction* Therefore! the over supply of labour /ill ultimately 'ecreases the
/age rate* Cence! increase' pro'uction /ill increase the rent to the lan'lor' but increase of labur /ill 'ecrease the /age to
the labourers*
CIGD Te*"no+o3) C"an3e 5a6
Cere! ne/ eDuilibrium /age rate /ill be set >700
Ta&+e 9.15a6
Un(# of
+a&o%r
Far' A Far' B Far' C Far' B
TPP
R)e
MPP
R)e
MRP R)e
E F9
RPP
R)e
MPP
R)e
MRP R)e
E F9
RPP
R)e
MPP
R)e
MRP R(*e
E F1
TPP
R)e
MPP
R)e
MRP R)e
E F9
0 0 0 > 202 0 0 > 202 0 0 > 202 0 0 > 202
1 400 400 > 1!.00 .-0 .-0 > !-00 000 000 > !000 .-0 .-0 > !-00
-0 :0 > 1!:00 100 0-0 > !:00 700 700 F ?.. 100 0-0 > !:00
: 1000 -0 > 1!100 1-0 4-0 > 1!700 :00 :00 > :00 1-0 4-0 > 1!700
4 10 0 F ?.. 10 400 > 1!.00 :40 0 > 0 10 400 > 1!.00
0 140 00 > K00 400 :0 > 1!:00 :.0 00 > 00 400 :0 > 1!:00
. 1.00 1-0 > -00 -0 -0 > 1!100 :K00 1-0 > 1-0 -0 -0 > 1!100
- 1-00 100 > .00 700 0 F ?.. :700 100 > 100 700 0 F ?..
K 1K-0 10 > 000 :100 00 > K00 40-0 10 > 10 :100 00 > K00
7 17-0 100 > 400 ::0 1-0 > -00 41-0 100 > 100 ::0 1-0 > -00
10 000 -0 > :00 :4-0 100 > .00 400 -0 > -0 :4-0 100 > .00
Ta&+e 9./ 5a6
#llocation of resources an' 'istribution of income
Units %omputations Rye X >4/bu* #n' Rice X > 1/bu* 0 /or&er
Aages rate > > 700
Farm #M
Aor&ers No* 4
Rent > +10 B > 4 8 4 B > 700, > 1!:00
Farm $M
Aor&ers No* -
Rent > +700 B > 4 8 - B > 700, > 0!000
Farm %M
Aor&ers No*
Rent > +700 B > 1 8 B > 700, > 1!100
Farm 3M
Aor&ers No* -
Rent > +700 B > 4 8 - B > 700, > 0!000
Total /ages bill +# 6 $ 6 % 6 3, > 1K!000
Total rent > 1:!400
Total Farm income +/ages Y rent, > :1!400
Total value of Farm +P B @, > :1!400
CIGD Te*"no+o3) C"an3e 5&6
:1
Ahen Price of rice is > 0*00
Ta&+e 9.15&6
Un(# of
+a&o%r
Far' A Far' B Far' C Far' D
TPP
R)e
MPP
R)e
MRP
R)e E
F9
RPP
R)e
MPP
R)e
MRP
R)e E
F9
RPP R)e
MPP
R)e
MRP R)e
E F5.5.
TPP
R)e
MPP
R)e
MRP
R)e E
F9
0 0 0 > 202 0 0 > 202 0 0 > 202 0 0 > 202
1 400 400 > 1!.00 .-0 .-0 > !-00 000 000 > 11000*00 .-0 .-0 > !-00
-0 :0 > 1!:00 100 0-0 > !:00 700 700 > 4700*00 100 0-0 > !:00
: 1000 -0 F 1$1.. 1-0 4-0 > 1!700 :00 :00 > 1.00 1-0 4-0 > 1!700
4 10 0 > 700 10 400 > 1!.00 :40 0 > 1:-*00 10 400 > 1!.00
0 140 00 > K00 400 :0 > 1!:00 :.0 00 F 11.. 400 :0 > 1!:00
. 1.00 1-0 > -00 -0 -0 F 1$1.. :K00 1-0 > 7.*00 -0 -0 F 1$1..
- 1-00 100 > .00 700 0 > 700 :700 100 > K0*00 700 0 > 700
K 1K-0 10 > 000 :100 00 > K00 40-0 10 > .K-*00 :100 00 > K00
7 17-0 100 > 400 ::0 1-0 > -00 41-0 100 > 000*00 ::0 1-0 > -00
10 000 -0 > :00 :4-0 100 > .00 400 -0 > 41*00 :4-0 100 > .00
Ta&+e 9.- 5&6
Units %omputations Rye X >4/bu* an' Rice > 0*0/bu*
Farm #M
Aor&ers No*
Rent > +1000 B > 4 8 : B > 1100, > -00
Farm $M
Aor&ers No* :
Rent > +-0 B > 4 8 . B > 1100, > 4!:00
Farm %M
Aor&ers No* 8
Rent > +:.0 B > 4 8 0 B > 1100, 14!4:K
Farm 3M
Aor&ers No* :
Rent > +-0 B > 0*0 8 . B > 1100, > 4!:00
Total /ages bill +# 6 $ 6 % 6 3, > !000
Total rent > :!-:K
Total Farm income +/ages Y rent, > 40!-:K
Total value of Farm +P B @, > 40!-:K
Con*+%!(on!:
Aith increase in price of rice to > 0*00! the total rent earne' by pro'ucing rice increase' to > 14!4:K from > 1100* This /ill
'efinitely encourages pro'ucing rice instea' of rye*
CGD In%!#r(a+(Ba#(on
Ne/ eDuilibrium /age 5 > 1700
Ta&+e 5.1
Un(# of Far' A Far' B Far' C Far' D
:
+a&o%r
TPP
R)e
MPP
R)e
MRP
R)e E F9
RPP
R)e
MPP
R)e
MRP R)e
E F9
RPP
R)e
MPP
R)e
MRP R)e
E F9
TPP
R)e
MPP
R)e
MRP R)e
E F9
0 0 0 > 202 0 0 > 202 0 0 > 202 0 0 > 202
1 400 400 > 1!.00 .-0 .-0 > !-00 :00 :00 > 1!400 .-0 .-0 > !-00
-0 :0 > 1!:00 100 0-0 > !:00 .-0 :0 > 1!:00 100 0-0 > !:00
: 1000 -0 > 1!100 1-0 4-0 F 1$?.. 7-0 :00 > 1!00 1-0 4-0 F 1$?..
4 10 0 > 700 10 400 > 1!.00 100 -0 > 1!100 10 400 > 1!.00
0 140 00 > K00 400 :0 > 1!:00 1000 00 > 1!000 400 :0 > 1!:00
. 1.00 1-0 > -00 -0 -0 > 1!100 1-0 0 > 700 -0 -0 > 1!100
- 1-00 100 > .00 700 0 > 700 170 00 > K00 700 0 > 700
K 1K-0 10 > 000 :100 00 > K00 100 1-0 > -00 :100 00 > K00
7 17-0 100 > 400 ::0 1-0 > -00 00 100 > .00 ::0 1-0 > -00
10 000 -0 > :00 :4-0 100 > .00 :-0 10 > 000 :4-0 100 > .00
Ta&+e 5.-
Units %omputations X >4 per bu*
Farm #M
Aor&ers No*
Rent > 8
Farm $M
Aor&ers No* :
Rent > +1-0 B > 4 8 : B > 1700, > 1!00
Farm %M
Aor&ers No* 8
Rent > 8
Farm 3M
Aor&ers No* :
Rent > +1-0 B > 4 8 : B > 1700, > 1!00
Total /ages bill +# 6 $ 6 % 6 3, . B 1700 > 11!400
Total rent > 100 6 > 100 > !400
Total Farm income +/ages Y rent, > 1:!K00
Total value of Farm +P B @, :400 B > 4 > 1:!K00
Con*+%!(on!:
Ahen the /age rate /ill be > 1700! Farm # an' Farm % can not hire /or&ers at that rate* =n such a con'ition! they have to
close their pro'uction*
HHH

Econometrics Assignment No 1

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Econometrics Assignment No 1

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MPH 511: ECONOMIC ANALYSIS FOR BUSINESS MPH 511: ECONOMIC ANALYSIS FOR BUSINESS

ASSIGNMENT ONE ASSIGNMENT ONE

General ManagerIs assumption of optimal Duantity of pro'uction +@, 5 10 unit

#gain! /e &no/ that!

Revenue functionH R 5 100@ 8*0 @

* "uppose the $oo& "tall is only selling the

Ahat /ill happen if cost function %hange' to T% 5 100 6 10 @

Marginal revenue! MR 5 5 171-8 14:*04@

Marginal cost! M% 5 5 0610@

* %ompute +a, profit

Revenue functionH R 5 P B @ 5 +00 8 @, B @ 5 00@ 8 @

#gain! Marginal Revenue +MR, 5 5 5 00 8 4@

60 @ 6 10 +%ost function,! /here! @ 5

Total Profit +J, 5 TR 8 T%

Total Profit +J, 5 TR 8 T%

TR 5 -0 B ..- 8 100 B +.*.-,

T% 5 : B +0, 610 B 0 6:0

6 10 @ 6 :0* Ahat /ill

#gain! MR 5 5 1K:4K8 .0K. @

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