Full name: Ton Nu My Duyen

Class: E-BBA 11.1

Student code: 11191366

GROUP ASSIGNMENT PRESENTATION 9

Problem 1: Suppose that a firm has a demand function of P = 100 - 0.01Q and a total
cost function of TC = 50Q + 30000 ($)

1. What are functions of total revenue (TR), marginal revenue (MR), marginal cost
(MC), variable cost (VC), average variable cost (AVC), fixed cost (FC), average
fixed cost (AFC), and average total cost (ATC)?

TR = P × Q = (100 - 0.01Q) × Q = 100Q – 0.01Q2

dTR
MR = dQ = TR’ = 100 – 0.02Q

MC = TC’ = 50

VC = 50Q

VC
AVC = Q = 50

FC = 30000

FC 30000
AFC = Q = Q

TC 50Q+30000 30000
ATC = Q = Q
= 50 + Q
2. Identify quantity and price to maximize total revenue? What is the maximum total
revenue (TR max)?

We have TR = 100Q – 0.01Q2

TRmax when TR’ = 0 100 – 0.02Q = 0  Q = 5000

When Q = 5000 => TR = 100 × 5000 – 0.01 × 50002 = 250000

and P = 100 – 0.01Q = 100 – 0.01 × 5000 = 50

ATC
100

P* = 75
Maximum Profit
D
MC
50

MR
Maximum Total
Revenue

Q* = 2500 Q = 5000 Q
3. Identify optimal output level (Q* ) that give the firm maximum profit ? What is
maximum profit of the firm?

To maximize profit marginal revenue equals to marginal cost:

 MC = MR => 100 – 0.02Q = 50 => Q* = 2500

+ P = 100 – 0.01Q => P* = 100 – 0.01 × 50 = 75

We have max = TR* - TC* = (100 × 2500 – 0.01 × 25002) – (50 × 2500 + 30000)
= 32500

So max= 32500

4. Assume that the government imposes a tax of 10$ per unit sold, identify optimal
output level (Q* ) and price level (P*) that give the firm maximum profit ?

If the government imposes a tax of 10$ on profit of a monopolist then the total cost
of the monopolistic competition firm will go up since this type of tax is like a cost.

+ We have, TC + 10Q = (50Q + 30000) + 10Q

 TCnew = 60Q + 30000
+ MCnew = (TCnew)’ = 60
To maximize profit marginal revenue equals to marginal cost:
 MCnew = MR => 60 = 100 – 0.02Q => Q* = 2000

+ P = 100 – 0.01Q => P* = 100 – 0.01 × 2000 = 80

We have max = TR* - TC* = (100 × 2000 – 0.01 × 20002) – (60 × 2000 + 30000)
= 10000

So max= 10000
Problem 2: A monopolist has total cost function of TC= Q2 + 40 Q + 8000, and
demand function of P = 500 – Q

a. What is price and optimal output level that gives this firm maximum total revenue
and maximum total profit? Calculate maximum total revenue and maximum total
profit of the firm?

+ We have TR = P × Q = 500Q – Q2
TRmax when TR’ = 0 500 – 2Q = 0  Q = 250
When Q = 250 => TR = 500 × 250 - 2502 = 62500
and P = 500 – Q = 500 – 250 = 250
Therefore, optimal output is 250 units and price is 250$, we got the maximum total
revenue is 62500$

+ MC = (TC)’ = 2Q + 40 ; MR = (TR)’ = 500 – 2Q

To maximize profit, marginal revenue equals to marginal cost:
MC = MR  2Q + 40 = 500 – 2Q => Q* = 115
+ P = 500 – Q => P* = 500 – 115 = 385
We have max = TR* - TC* = (500 × 115 – 1152) – (1152 + 40 × 115 + 8000) =
18450
So max= 18450
b. What is Lener indicator (L) to measure market structure ? What is dead weight loss
(DWL) created by this monopolist?

+ The firm profit maximization occurs when Q* = 115 and P* = 385

+ Using Lerner indicator (L), we got the market power of this firm:

P−MC 385−27 0
L= P
= 385
= 23/77 ≈ 0.3

 So, the price and optimal quantity that give firm profit maximization are P* = 385,
Q* = 115 and the market power of that firm is about 0.3
 MC
P
C

500

CS
I
P*= 385

H A
PS DL
270
B
40 MR
K Q
115 460/3 D

1 1
Monopolist creates DWL = SAIB = 2 × AH × IB = 2 × (460/3 – 115) ×

13225
(385 – 270) = 6
($)

c. Identify consumer surplus (CS), Producer surplus (PS) at the optimal output level?

1 1
CS = 2 × CP* × IP* = 2 × (500 – 385) × 115 = 6612.5

1 ( 385−270+385−40 ) ×115
PS = 2 × ¿ ¿ = = 26450
2

d. What is price level to maximizes quantity without loss?

To maximize quantity without loss, TR = TC

→ 500Q – Q2 = Q2 + 40Q + 8000

→ Q = 211 (√)

or Q = 19 (x)

At Q = 211, P = 500 – 211 = 289$

e. Draw a graph to show the above results.

MC
P
C

500

CS
I
P*= 385

H A
PS DL
270
B
40 MR
K Q
115 460/3 D