Student id: 200206429

Assignment # 2: ECO401
Suppose total revenue (TR) and total cost (TC) functions of Samsung are
following:
TR = 175Q – 2.5Q2
TC = 50 + 10Q
Solution:

a) Calculate profit maximizing output level of Samsung using marginal

revenue (MR) and marginal cost (MC) approach.

Profit is maximized at the point where:

MC = MR

MC function can be found by taking derivative of total cost (TC) function.

d (TC )
MC =
dQ

d
MC = (50+10Q)
dQ

MC = 10

MR function can be found by taking derivative of total revenue (TR) function.

d (TR)
MR =
dQ

d
MC = (175Q – 2.5Q2)
dQ

MR = 175 – 5Q

As profit is maximized at the point where MR = MC , so by equating values of MC and

MR function ,we get,

MC = MR

10 = 175 – 5Q

5Q = 175 –10
 5Q= 165

165
Q=
5

Q = 33

b) Find out the amount of profit earned by Samsung at profit maximizing

level of output calculated in part a.

The equation for total profit is

Tπ = TR – TC

Tπ = (175Q – 2.5Q2) – ( 50+ 10Q)

Tπ = 175Q – 2.5Q2 – 50 – 10Q

Tπ = 155Q – 2.5Q2 – 50

Putting Q = 33, we get,

Tπ = 165(33) – 2.5(33)2 – 50

Tπ = 165(33) – 2.5(33)2 – 50

Tπ = 5445 – 2.5(1089) – 50

Tπ = 5445 – 2722.5 – 50

Tπ = 2672.5

So profit is maximized where output is 33 and the maximum profit is 2672.5

c) Calculate average revenue (AR) function and slope of average revenue

(AR) function.

We can also calculate AR from this information:

TR = 175Q – 2.5Q2

TR
AR =
Q
 175Q – 2.5 Q 2
AR =
Q

175Q 2.5Q 2
AR = –
Q Q

AR = 175 – 2.5Q

AR = 175 – 2.5(33)

AR = 175 – 82.5

AR = 92.5

Slope of average revenue ( AR ) function,

d ( AR)
Slope of AR =
dQ

d
Slope of AR = (175 – 2.5Q)
dQ

Slope of AR = –2.5