Average Cost and Marginal Cost

Average Cost AC  

Total cost C

Total number of products produced x
dC
MC 
dx
 Average Revenue and Marginal
Revenue
Total revenue R
Average Revenue(AR )  
Total number of products sold x
dR
MC 
dx
 Problems
• The cost function of a firm assumed to be
C=0.01x3+250 x, where x is monthly output in
thousands of units
• Its revenue function is given as R= 1500x-2x2
(i) Find the firms total cost and marginal cost for
producing 10,000 units
C= 0.01×(1000)+2500= 2510
MC  0.03x 2  250  253
x 10
• (ii) If the firm decides to produce with
marginal cost of Rs 298, find the level of
output per month and total cost to firm
MC  0.03 x 2  250
298  0.03 x 2  250
48  0.03 x 2
or x  40 thosand
C  0.01x  250 x
3
 10640
x  40
• (iii) Find the firm’s average and marginal
revenue function
R (1500 x  2 x 2 )
AR    1500  2 x
x x
dR
MR   1500  4 x
dx

• (iv) Find total revenue and marginal revenue if

the firm produced 10000 units per month
R  1500 10  2 100  14800
dR
MR   1500  4 10  1460
dx
• (v) If the firm decides to produce with
marginal revenue of Rs 1100, find the firm’s
monthly output and monthly revenue
MR  1100  1500  4 x
x  100 thousand
R  1500  100  2  100  130000
2

• (vi) Obtain the firm’s profit function and

marginal profit function
  
P  R  C  1500 x  2 x 2  0.01x 3  250 x 
 1250 x  2 x 2  0.01x 3
dP
MP   1250  4 x  0.03x 2
dx
• (vii) Find the output required per month to
make marginal profit equal to zero and obtain
profit at this level of output. What is maximum
profit?
dP
MP   1250  4 x  0.03 x 2  0
dx
 4  16  4  (0.03)  (1250)
x
0.06
 148.0683 thousand
P  1250 x  2 x 2  0.01x 3
x 148.0683

 1087.7411

2
d P
2
 4  0.06 x  0 x is positive
dx
• (viii) Find the marginal cost and marginal
revenue at this level of result

MR  1500  4 x x 148.068  1500  4 148.068

 907.728
 Elasticity of demand and supply
• Price Elasticity of demand is given as:
Q2 Q1
dx P
 p ,d  Q1
P2  P1

P1 dp Q

• Price Elasticity of supply is given as:

dx P
 p,S  
dp Q

• Income Elasticity of demand

Q2 Q1
dx I
I  Q1
I 2  I1

I1 dI Q
 Problem
• Find elasticity of demand and supply at the
equilibrium for the demand function p  100  x 2

and the supply function x=2p-10 where p is

the price and x is the quantity

• At equilibrium

=1/9

=9/3
 Problem
• Find the income elasticity of demand for the
demand function
• Show that decreases as Y increases and Y
denotes income.

Differentiating ey with respect to y

so decreasing function
 Maximization and Minimization using
Langrange’s multiplier
• In manufacturing a commodity the labour
and the capital is utilized. If the cost function
of a commodity is and the
production function is
• Find the values of x and y so that cost is
minimum

• 252.9822