Optimization Tutorial questions

1. The demand function of a health product is given by a function p = 0.001q2+840

a. Obtain the total revenue function
b. Derive the average total revenue function
c. Determine the total marginal total revenue function.

2. Given the total demand function, p(x)=2-0.01p, where p is the unit price in thousand $
and x is the quantity of the item.
a. Find the total revenue function.
b. Determine the price which maximizes the total revenue.

q2
3. Given the total cost function is C(q)= +3q+400
4
a. find the average cost function
b. derive the ultimate total cost function
c. what is the quantity which has to be produced so that the average total cost is
minimized?

4. Elyna trading supplies sports attire to the supermarkets in north peninsula. The
15
company’s annual cost is given by a function C= +0.15q+200, where q is the
q
quantity in dozen) and c is the total cost in a year (in thousands of $)
a. What is the quantity which minimizes the total cost?
b. What is the minimum total cost?

QUESTION 1

i) An economic and financial consultant has estimated the Demand and the Marginal Cost
functions of your firm as follows:
P = 30 – Q
And
MC = Q + 6
Fixed cost is estimated to be $7
where:
Q is quantity, P is price in $ and MC is marginal cost

REQUIRED
a) Find the level of output that maximizes profit?
b) What is the maximum profit?
c) Calculate the average variable cost at the profit maximizing level of output
d) Compute the breakeven level of output
 e) Find the difference between the price that maximizes profit and the price at the breakeven
point.

ii) An accountant has estimated that the weekly cost of production, C for a product is given by
the equation:
C = 100 + 23x + 0.5x2
where x is the number of units of tones produced.
The weekly revenue equation, R, is given by
R = 100x – x2 (x < 1000)

a) What are the Marginal Cost and Marginal Revenue functions?

b) Find an equation for the demand
c) Compute the average cost function

QUESTION 2
dy 2
∧d y
a) Find dx , for each of the following equations
2
dx

(i) y = 3x2 + 10x3

(ii) y = (2x – 1) (3x + 2)
(iii) y = 2x4 – 8x2 + 10

b) Tropical Cable & Conductors Ltd can sell x items per day at a price of p GH¢ each,
5x
where p=125- . The total cost of producing the x items is 500 + 13x + 0.2x2.
3
Compute the number of units to
i. Computer the number of units to produce and sell to have a maximum profit

ii. Assuming that all items produced can be sold, what is the maximum profit the
company can make?
iii. How much should be produced to breakeven?

(a) Evaluate the following

(i)

(ii)
 (iii)

QUESTION 3
A firm analyzed its operating conditions, prices and costs and have developed the following
functions:
Revenue and
Cost

Where Q = number of units sold. The firm wishes to maximize profit and wishes to know:
a) What quantity should be sold?
b) At what price?
c) What will be the amount of profit?
d) What is average cost?
e) Find the total variable cost and average variable cost.
f) What is the fixed cost?
g) What is the unit to be sold to breakeven?
h) At what price will the firm breakeven?

QUESTION 4
A company is faced by the following marginal cost and Marginal Revenue functions:
MC=16–2Q
MR=40– 6Q

It is also known that fixed costs are $8 when production is zero.

Find:
 The profit maximizing output level
 The total cost function
 The total revenue function

QUESTION 8

(b) Find , if
 (i)

(ii)

(iii)

(c) Tropical Cable and Conductors Ltd can sell x items per day at a price of p GH¢ each, where

p . The cost of production for x items is

.
i. Find how much they should produce to have a maximum profit.
ii. Assuming that all items produced can be sold. What is the maximum profit?
iii. How much should be produced to breakeven?

QUESTION 9
A microfinance consulting firm has recently started to give economic advice to its clients. acting
as one of the firm’s consultants you have estimated the demand curve of a client’s firm to be;

AR=200-8X

Where
AR is average revenue in thousands of Ghana cedis
X is output in units.

Your investigation of the clients cost profile shows that marginal cost is given by

MC = 2X-28
Where MC is marginal cost in thousands of Ghana cedis
X is output in units.

Further investigations by you have shown that the firms cost when nothing has been produced is
GHc 211.

REQUIRED
i. derive the total revenue and total cost functions.
ii. calculate the output level that maximizes profit.
iii. what is the maximum profit?
iv. calculate the price that maximizes profit.
v. compute the price elasticity of demand for the firm’s product at the profit maximizing
output level.
 vi. as a consultant advise the firm on its pricing policy.
vii. the government imposes a per unit tax on the firm, calculate:
a. the new profit maximizing level of output.
b. the new maximum profit.

QUESTION 10

A manufacturer of plastic chairs has the following marginal revenue (MR) and average revenue
(AR) cost functions:

MR= 204-2X
AC=X+4+1000/X

Where X is the units of plastic chairs produced and sold; MR is the marginal revenue, and AC is
the average cost of production.

REQUIRED
i. Derive the total revenue function.
ii. Compute the total cost equation.
iii. Derive the demand (price) equation.
iv. Derive the profit function.
v. How many plastic chairs should the manufacturer produce to maximize profit?
vi. Calculate the maximum profit in cedis.
vii. Calculate the price that maximizes profit.
viii. Compute the elasticity of demand for the plastic chairs at the profit maximizing output
level.
ix. Is demand elastic or inelastic? Explain.