Naila Maryam

Assignment(1) MTH603 (2020)

ID N0 Bc180402199
Question #1

The Case:
COVID-19 Vaccine was the great challenge for the
pharmaceutical companies. There are different
companies who are competing to produce COVID-19
Vaccine like Astra Zeneca, Pfizer, Moderna, Novavax,
Sino Vac, Curevac, and Johnson & Johnson etc. Pfizer
Inc. is one of the world’s largest Pharmaceutical
companies. It is largest United States corporations by
total revenue. In May 2020, Pfizer began testing four
different COVID-19 vaccine variations. It is also
preparing Vaccine tozinameran with the help of
German biotechnology company BioNTech. This
company is expecting to produce hundreds of millions
of doses in 2021. Suppose the total revenue (TR) and
total cost (TC) functions of this company are:

𝑻𝑹 = 𝟏𝟓𝟎𝑸 – 𝟒Q 2

𝑻𝑪 = 𝟒𝟎 + 𝟏𝟎𝑸 + 𝟑Q 2

Requirements:
a) Calculate the profit maximizing level of output for a
price making firm.
 b) Calculate the amount of profit earned by the firm at
profit maximizing level of output calculated in Part 1.
c) Mathematically prove the slope of MR is twice the
slope of AR.
Solution:
𝑻𝑹 = 𝟏𝟓𝟎𝑸 – 𝟒Q 2

𝑻𝑪 = 𝟒𝟎 + 𝟏𝟎𝑸 + 𝟑Q 2

Profit is maximized at the point where

MC = MR
MC function can be found by taking derivative of
total cost function
dTC
MC = dQ
MC = 10 +6Q

MR function can be found by taking derivative of

total revenue(TR) function
dTR
MR = dQ
= 150 – 8Q

As profit is maximized at the point where MR = MC

so by equation values of MC and MR function ,we get

MR = MC
10+6Q = 150 – 8Q
6Q +8Q = 150 -10
 14Q = 140
Q = 10
I) The equation for total profit is

Tπ = TR –T C
=150Q -4Q −(40 Q+10 Q+3 Q )
2 2

=150Q -4Q −40 Q−10 Q−3 Q

2 2

=140Q-40-7Q
2

II) Putting Q =10

Tπ=140(10)-40-7(10) 2

Tπ =1400-40-700

Tπ=660
So profit is maximized where out put is 10and the
maximum profit is 660
We can also calculate AR from this information
TR =48Q-4Q 2

AR =TR/Q
AR = 150 -4Q
=150 -4(10)
AR = 110
III) Slope of MR curve is twice as the slope of AR
curve
Slope of MR is obtained by differentiating MR
function with respect to’Q’
dMR
Slope of MR = dQ
d
= dQ ( 150−8 Q )
= -8
Slope of AR is obtained by differentiating AR
functions with respect to Q
 dAR
Slope of AR = dQ
d
= dQ ( 150−4 Q )
= -4