Small Business Development (EP60029) Date: 30.10.

2022
Total marks: 30

Pricing Assignment
Q1. Zicon Manufacturing produces two types of automobile vacuum cleaners. One which we denote as
product X, Plugs into the cigarette lighter receptacle; the other, product Y, has rechargeable batteries.
Assuming that there is no relation between the two products other than the apparent substitutability in
consumption, the manager of Zicon wanted to determine the profit-maximizing levels of production and
price for the two products.

The forecasted demand functions for the two products are:

QX = 80,000 – 8,000 PX + 6,000 PY

QY = 40,000 – 4,000 PY + 4,000 PX

The production manager obtained estimates of the total cost functions:

TCX = 7.5QX + 0.00025Q2X and TCY = 11QY + 0.000125Q2Y
Determine the profit maximization outputs, profit maximization prices and profit earned by Zicon.

Q2. Surefire Products, Inc., manufactures two products X and Y that are unrelated in consumption but are
substitutes in production. The owner can increase or decrease the total number of hours that the firm can
use its production facilities. The owner wants to know: What is the optimal level of usage (hours of
operation) of the plant? How should the level of usage be allocated between the productions of the two
products?

QX = 60 – 0.5PX and QY = 40 – 0.67PY

Discussion with the plant supervisor indicated that in one hour of production time either 2 units of X or 4
units of Y could be produced, i.e., Q X = 2HX and QY = 4HY where HX and HY are denote hours of
assembly-line time in the production of X and Y.
From the production functions the marginal products are MP Hx = 2 and MPHy = 4.

Using the demand forecasts and the estimates of the production functions provided by the plant
supervisor, estimates if the marginal revenue product of the production facility in production of X and Y
were MPHx = MRX × MPHx and MPHy = MRY × MPHy

MC = 72 – 2HT

Note: The marginal products of X and Y for extra hours of production time can be expressed as:
ΔX ΔY
=MP Hx and =MP Hy
ΔHX Δ HY

∆ TR
For goods X and Y, the marginal revenue products are: MRP X = =MR X × MP Hx
∆HX

∆ TR
and MRPY = =MRY × MP Hy while MRPX = MRPY = MC = MRPT
∆ HY
Small Business Development (EP60029) Date: 30.10.2022
Total marks: 30

Q3. ChemTech Corporation produces refined chemicals, and two of these chemicals are complements in
production. As it refines the raw chemical input, the processes yield equal amounts of xylene and ylene
denoted by X and Y. The owner of ChemTech must determine the profit-maximizing amounts of xylene
and ylene to produce and the prices to charge.
QX = 285,000 – 1000PX and QY = 150,000 – 2000PY where quantities is in gallon drums and
prices in $.
Note that MRY is equal to 0 at an output of 75,000 drums. Over the range of output from 0 to 75,000
units, the joint marginal revenue function is the vertical summation of the two marginal revenue curves:
MRJ = MRX + MRY
And Q represents both QX and QY (Q = QX = QY)
MC = 10 + 0.0002Q
For profit-maximization: MRJ = MC