FACULTY OF BUSINESS, ECONOMICS AND ACCOUNTANCY

UNIVERSITI MALAYSIA SABAH

MANAGERIAL ECONOMICS (BM6033)

SEMESTER 1 SESSION 2021/2022
GROUP ASSIGNMENT II (SECOND PART)

PREPARED BY:

NUM. NAME MATRIC NUMBER

1- NORFAHIMAH BINTI ABDUL HAMID MB2112163T
2- FARISYA NABILA BINTI MOHD HAMIDI MB2112181T
3- SYAFIQAH HANIM BINTI MAT RADI MB2112071T
4- SITI NADIAH BINTI NORBEH MB2112119T
5- ZAWANI YUSRA BINTI ZAINUDIN MB2112173T

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TABLE OF CONTENTS

1.0 Question 1 .............................................................................................................. 3

2.0 Question 2 ............................................................................................................. 4
3.0 Question 3 .............................................................................................................. 7
4.0 Question 4 ............................................................................................................. 11
5.0 Question5 ............................................................................................................. 14

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Question 1

The demand function for a monopoly is:

Q= 4000 - 4P

Its total cost function is: TC= Q² + 300Q+ 100

a) What is the maximum profit this company can make? What is the quantity that
maximizes profit?

Q= 4000 – 4P

4P= 4000 – Q
𝑄
P= 1000 – ( 4 )

Total Revenue= P x Q
𝑄
= [1000 – 4 ] x Q

𝑄2
= 1000 – ( )
4

2𝑇𝑅
Marginal Revenue = 2𝑄

2𝑄
= 1000 – ( 4 )

1
= 1000 - Q
2

Marginal Cost = 2 Q + 300 = M.C

MR= MC
1
1000 - 2
Q = 2Q + 300

1
700 = 2Q +2 Q

5𝑄
700 = 2

1400/5 =Q

280 =Q

b) Determine the price for its product at this point.

280
P = 1000 - 4

= 1000 – 70

= 930

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Question 2

A monopolist with TC=3q2+q+12 faces a demand curve of P=81-2q.

1. Find the monopoly price and quantity.

TR = P x Q
= (81-2q) q
= 81q – 2q2

MR= dTR/dQ
= 81 – 4q

MC = MR

6q + 1 = 81 – 4q

6q + 4q= 81 -1

10q = 80

Q =8

P = 81 – 2(8)

= 65

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2. Find CS and DWL.

200

150

100
Demand
Price

MR
50 MC

0
0 5 10 15 20 25 30 35

-50
Quantity

CS = ½ x (81 – 65) (8 – 0)

= 64

PS1= (65 – 49) x 8

= 128

PS2= ½ (48) (8)

= 192

PS = 128 + 192

= 320

DWL = ½ (65-49) (10-8)

= 16

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3. Find the elasticity of the demand at the monopoly equilibrium.

MR = MC
1
MR= P (1 + )
𝐸

1 49
65 (1 + ) =
𝐸 65

49 1
1+ 65
=- 𝐸

16 1
=-
65 𝐸

16
65
E = -1

−1
E =
16/65

−65
E =
16

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Question 3

The market demand for peanuts is given by p = 50 - 0.5y. Squirell Inc. is the only
supplier of peanuts. Its total cost function is given by TC(y) = 10y. Calculate:

i) the profit maximizing level of output, the profit maximizing price,

the consumers surplus, the monopoly profits, the burden of
monopoly (deadweight loss)

Profit maximisation is when MR = MC

Find MR:

MR = Changes is total revenue/ changes in quantity

TR =P x Q

= (50 – 0.5y) y

=50y -0.5y2

MR = 50 – 1y

Find MC:

TC = 10y

MC= 10

Profit maximisation is when MR = MC

50 – 1y = 10

Y = 40

Profit maximizing level of output is when Y=40

Profit maximizing price if y=40;

p = 50 - 0.5(40)

p = 50-20 =30

Profit maximizing price is RM30

When P=RM30 and Q=40;

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 Consumer surplus;

CS = Red triangle = ½ x (40-0) x (50-30) = 400

Consumer surplus is 400

Monopoly profits;

MP = Yellow rectangle = (40-0) x (30-0) = 1200

Monopoly profit is 1200

Burden of monopoly (deadweight loss);

DL = Purple triangle = ½ x (80-40) x (30-10) = 400

Deadweight loss is 400

ii) Squirell Inc. loses a legal battle and as a result has to pay licensing fee of $700
per year to Jiffy Ltd. Its total costs therefore increase to TC = 10y + 700. With
this new cost function, once again calculate: the profit maximizing level of
output, the profit maximizing price, the consumers’ surplus, the monopoly
profits, and the deadweight loss.

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Profit maximisation is when MR = MC

Find MR:

MR = Changes is total revenue/ changes in quantity

TR =P x Q

= (50 – 0.5y) y

=50y -0.5y2

MR = 50 – 1y

Find MC:

TC = 10y + 700

MC= 10

Profit maximisation is when MR = MC

50 – 1y = 10

Y = 40

Profit maximizing level of output is when Y=40

Profit maximizing price if y=40;

p = 50 - 0.5(40)

p = 50-20 =30

Profit maximizing price is RM30

When P=RM30 and Q=40;

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Consumer surplus;

CS = Red triangle = ½ x (40-0) x (50-30) = 400

Consumer surplus is 400

Monopoly profits;

MP = Yellow rectangle = (40-0) x (30-0) = 1200

Monopoly profit is 1200

Burden of monopoly (deadweight loss);

DL = Purple triangle = ½ x (80-40) x (30-10) = 400

Deadweight loss is 400

iii) Are your answers the same as in part (a) or different? Explain why.

The answer is the same because marginal cost measures the change in total cost with
respect to a change in the production output level only. A change in fixed cost does not
affect the marginal cost. So, the profit maximizing level of output, the profit maximizing
price, the consumers’ surplus, the monopoly profits, and the deadweight loss will be the
same since the marginal cost does not affect by the additional $700 of total cost.

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Question 4

A monopolist firm faces the following cost curve: C(Q) = Q2 + 12, where Q is the
output produced. The demand for its product is given by P = 24 - Q.

i. Find the equilibrium price and quantity

P = 24 – Q …………………… 1
Q = Q2 + 12……………………. 2

Find Q in 2
Q = Q2 + 12
Q – Q2 = 12
Q = 12

Insert 2 into 1
P = 24 – Q
P = 24 – 12
P = 12

ii. Find the profit level

P = 24 – Q C = 12 + Q2
TR = PQ MC = dTC / Dq = 2Q
= (24 – Q) Q
= 24Q – Q2
MR = dTR / dQ = 24 – 2Q
MR = MC
24 – 2Q = 2Q
24 = 2Q + 2Q
24 = 4Q
24/4 = Q
Q=6

P = 24 – Q
P = 24 – 6
P = RM 18

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iii. Calculate the Consumer Surplus, the Producer Surplus and the Deadweight
Loss associated to the monopoly.

P = 24 – Q C = 12 + Q2
C = Q2 + 12 MC = dTC / Dq = 2Q

TR = PQ
= (24 – Q) Q
= 24Q – Q2
MR = dTR/dQ = 24 – 2Q
MR = MC
24 – 2Q = 2Q
24 = 2Q + 2Q
24 = 4Q
24/4 = Q
Q=6

a) Customer Surplus: Green triangle P = MC

CS = ½ (24 – 18) (6 – 0) 24 – Q = 12
= 18 24 – 12 = Q
b) Producer Surplus: Orange rectangle Q = 12
PS = (6 – 0) (18 – 12)
= 36

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c) Deadweight Loss: Pink triangle
DWL = ½ (12 – 6) (18 – 12)
= 18

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Question 5

Sabah Waters Inc. has been providing water services in the Principality of Kota
kinabalu for nearly a century. The demand for water is determined to be P= 40 –
5Q, where Q is the number of clients served (in millions) and P is the price
charged (in millions of Euro). Sabah Waters Inc. total costs are determined by
TC= 10 – 0.75Q. If Sabah Waters Inc. total assets equal 550,000,000 what is the
company’s rate of return, if it produces at profit maximizing level of output?

Total Revenue = P x Q

= (40 – 5Q) x Q

= 40𝑄 − 5𝑄 2

Marginal Revenue= Change in Total Revenue/ Change in Quantity

= d (40𝑄 − 5𝑄 2 ) / dQ

= 40 – 10Q

Total Cost = 10 – 0.75Q

Marginal Cost = Change in Total Cost/ Change in Quantity

= d (10 – 0.75Q)/ dQ

= -0.75Q

In order to maximize the output of Sabah Water Inc. the MR = MC

MR = MC

40 – 10Q = 0.75Q

10Q = 40 + 0.75Q

10Q = 40.75

Q = 40.75/ 10

Q = 4.075

When Q = 4.075

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P = 40 – 5 (4.075)

P = 40 – 20

P = 20

Accounting profit = (P x Q) – TC

= (20 x 4.075) – (10 – 0.75 (4.075))

= 81.5 – 6.94

= 74.56

Rate of return = 74.56/ 550 x 100

= 0.136 or 13.6%

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