Name : Bernadeta Pramudya Wardhani

NIM : 29119055

Class : YP 61 – A

Business Economy – Assignment Week 3A

1. The head of the economics research department of the Indo Statistician Company tried to
derive a function to determine the marginal cost of one of the company’s client. The
marginal cost was found to be as given below, with estimated cost by unit at $75:

MC = 80 – 0,1Q + 0,0001Q2

a. Determine the levels of output at which price of units becomes equal to the marginal cost,
given that the estimated cost per unit is $75

75 = 80 – 0,1Q + 0,0001Q2

5 = 0,1Q + 0,0001Q2

0,0001Q2 – 0,1Q + 5 = 0

Q1 = 948

Q2= 53

b. Find out the average variable cost function.

TVC = 0,0001Q 3/3 – 0,1Q 2/2 + 80Q

AVC = TVC/Q = 0,0001Q 2/3 – 0,1Q/2 + 80

c. Find the average variable cost.

AVC(Q) = 0,0001Q 2/3 – 0,1Q/2 + 80

AVC (948) = 62,5

AVC (53) = 77,5

2. In Vasant Vihar, South Delhi, the movie market is monopolistically competitive. The
demand fucntion for daily attendance and the long run average cost function at the Priya
Cinema are respectivelly,

P = 9 – 0,04Q
 And AC = 10 – 0.06Q + 0,0001Q2

a. Calculate the price that the Priya Cinema will charge for admission in the long run.

P = AC
9 – 0,04Q = 10 – 0,06Q + 0,0001Q2
10 – 9 – 0,06Q + 0,04Q + 0,0001Q22 = 0

1 – 0,02Q + 0,0001Q2 = 0
X 10.000
10.000 -200Q + Q2 = 0 (Q – 100 )(Q - 100)
Q1 = 100
Q2 = 100
Price that the Priya Cinema will charge for admission in the long run.
P = 9 – 0,04Q
P = 9 – 0,04 (100)
P=9–4
P = $5
b. What will be the number of patrons per day at that price?

P = 9 – 0,04Q

-0,04Q = 9 – P
9−5
Q= =100
0.04
c. What is the value of the LAC that the firm will incur?

LAC = 10 – 0,06Q + 0,0001Q2

LAC(Q =100) = 10 – 0,06(100) + 0,0001(100) 2
LAC(Q =100) = 10 – 6 + 1
LAC(Q =100) = $5π

d. How much profit will the firm earn?

Profit (π)= TR - TC
TR = P x Q
TR = 5 x 100 = 500
 TC = AC x Q
TC = (10 – 0,06Q + 0,0001Q2) x Q
TC = 10Q – 0,06Q2 + 0,0001Q3
TC = 10(100) – 0,06(100) 2 + 0,0001(100) 3
TC = 1000 – 600 + 100 = 500
π = TR – TC = $500 – $500 = $0

3. A two equal sized firm cartel faces demand function Q = 20 – 2P and each firm faces
marginal cost function MC = 2Q. Derive:

a. The MR function of the cartel, and

Q = 20 – 2P
2P = 20 – Q
20−Q
P=
2
TR=P x Q
❑
2Q−Q
TR= (2 ) xQ
20 1
TR= Q− Q 2
2 2

∆ TR 20 2
MR = = − Q
∆Q 2 2

MR = 10 – Q
Marginal Revenue function of cartel is MR = 10 – Q.

b. The MC functions for the entire cartels

MC Cartel = MCa + MCb
MC Cartel = 2Q + 2Q = 4Q

c. Find the algebraic solution to determine the equilibrium Q and P for each cartel
MC = MR
2 (2Q) = 10 – 0
4Q = 10 – Q
5 Q = 10
So, Q = 2 , equilibrium Q for each cartel is 2.
 P = 10 -0.5 Q
P = 10 – 0.5 (2)
P = 9, equilibrium P for each cartel is 9.

4. A two firm cartel producing industrial diamonds faces the following demand function:

Q = 120 – 10P or Q = 12 – 0,1P

The marginal cost and average total cost functions of each firm are, respectively:

MC 1 = 4 + 0,2Q 1 and ATC1 = 4 + 0,1Q 1

MC 2 = 2 + 0,2Q 2 and ATC2 = 2 + 0,1Q 2

Draw a figure showing the best level of output and price for the cartel, and the output of
each firm to minimize the total costs of production for the cartel. Calculate the profits per
unit and in total for each firm.

Q = 120- 10 P
10P = 120 – Q For the Firm
P = 12 – 0.1Q 1 MC1 = 4 +
0,2Q1 0,2Q1 =
MC1 – 4
ATC = ATC1 + ATC2
Q1 = 5MC1 – 20
= (4 + 0.1Q1 ) + (2 + 0.1Q2 )
= 10.50 For the Firm
2 MC2 = 2 +
TR = P x Q 0,2Q2 0,2Q2 =
= (12 – 0.10Q) Q MC1 – 2
= 12Q – 0.10 Q 2 Q2 = 5MC1 – 10

∆ TR
MR = ∑MC = MC1 + MC2
∆Q
Q1 = 5 MC1 - 20
= 12 – 0.2 Q Q2 = 5 MC2 – 10
2Q = 10 MC – 30
10 MC = 2Q + 30
MC = 0.2Q + 3
For the Firm 1
ATC1 = 4 + 0,1Q1
= 4 + 0.1 (22.5)
= 6.25
For the Firm 2
ATC2 = 2 + 0,1Q2
= 2 + 0.1 (22.5)
= 4.25

To maximize profit :

MR = MC

12 – 0.20Q = 0.2Q + 3

0.4 Q =9

Q = 22.5

P = 12 – 0.1 (Q)

= 12 – 0.1 (22.5)

= 9.75

π = TR – TC

π = (12Q – 0.10 Q 2) – (4Q + 0.10 Q 2)

π = 8Q – 0.2 Q 2
π = 78.75

Each profit is equal to $ 39.38

When MR = MC, level output and price for cartel , P = 9.75 and Q = 22.5