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EC 501: Problem Set 1, Solutions

This document contains solutions to 10 problems related to calculus concepts like differentiation, maximization, and revenue functions. The key points are: 1) It finds the equation of a line given two points and differentiates several functions. 2) It solves optimization problems by taking derivatives and setting them equal to zero to find maxima/minima. 3) It examines how a tax on a firm would impact profit maximization and government tax revenue. 4) It derives a total revenue function by integrating the given marginal revenue function.

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AradhnaMangla
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30 views

EC 501: Problem Set 1, Solutions

This document contains solutions to 10 problems related to calculus concepts like differentiation, maximization, and revenue functions. The key points are: 1) It finds the equation of a line given two points and differentiates several functions. 2) It solves optimization problems by taking derivatives and setting them equal to zero to find maxima/minima. 3) It examines how a tax on a firm would impact profit maximization and government tax revenue. 4) It derives a total revenue function by integrating the given marginal revenue function.

Uploaded by

AradhnaMangla
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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EC 501: Problem Set 1, Solutions

1. (a) The equation of the line is


212 32
F 32
=
.
C 0
100 0
This simplifies as follows:
F 32
180
=
C
100

F 32 =

9
C
5

9
F = 32 + C.
5

(b) F = C when
9
F = 32 + F
5

4
F = 32 =
5

F = 40.

2. Differentiating u(y) = y 2 :
u0 (y) =

1 1
y 2
2

and

Then
R=

yu
=
u0

1 3
u(y) = y 2 .
4



3
y 14 y 2
1 21
2y

1
.
2

3. Differentiating implicitly:
4x + 6y + 6xy 0 + 2yy 0 = 0.

(1)

Substituting x = 1, y = 2, we get
4 + 12 + 6y 0 + 4y 0 = 0

8
y0 = .
5

Differentiating (1) implicitly:


4 + 6y 0 + 6y 0 + 6xy + 2y 0 y 0 + 2y 0 y 0 = 0.
Substituting x = 1, y = 2, and y 0 = 58 , we get


8
64
4 + 12
+ 6y + 2
+ 4y = 0
5
25

y =

126
.
125

4. Differentiating:
f 0 (x) =

ex3
> 0 f or all x.
2 + ex3

Thus there are no values of x for which f 0 (x) < 0.


5. Note that
f (1) =

11
= 0.
1+1

Now
0

f (x) =



(xp + xq ) pxp1 qxq1 (xp xq ) pxp1 + qxq1
2

(xp + xq )

and therefore

2(p q) 0
pq
=
> 0.
22
2
The first-order Taylor approximation is then
f 0 (1) =

f (x) f (1) + f 0 (1)(x 1) =

pq
(x 1).
2

6. (a)
N (10) =

1000
= 47.12.
1 + 999e3.9

(b) We need to solve for t the following equation:


500 =

1000
.
1 + 999e0.39t

This yields
1
t=
ln
0.39

1
999


= 17.71 days.

7. (a) To test for homogeneity, note that:


i v1
h
v
v
.
Q(tK, tL) = A a (tK) + b (tL)
This simplifies to

 1
Q(tK, tL) = tA aK v + bLv v = tQ(K, L).

Thus Q(K, L)is homogeneous of degree 1.


(b)
"  
# v1
 1
 v1


v
Q
aK v + bLv v
aK v
K
+b
=A
=A
=A a
+b
.
L
Lv
Lv
L

8. (a) To maximize profits:

= 0.2x 0.2y + 47 = 0
x

(2)

= 0.2x 0.4y + 48 = 0
y

(3)

Subtracting (3) from (2) and simplifying yields:


0.2y = 1

y = 5.

0.2x = 46

x = 230.

Then, from (2):


To check that this yields a maximum, check the second-order conditions:
2
= 0.2 < 0
x2

2
= 0.4 < 0
y 2

Further, note that


2
= 0.2.
xy
Therefore
2 2
2
x2
y

2
xy

2

= (0.2)(0.4) (0.2)2 = 0.04 > 0

Thus we have confirmed that the solution at x = 230, y = 5 does indeed


yield a maximum.
(b) If x + y = 200, the problem becomes a constrained optimization problem:
M ax (x, y)
subject to x + y = 200.
To solve this problem, write down the Lagrangian for it:
L = 0.1x2 0.2xy 0.2y 2 + 47x + 48y 600 + (200 x y)
3

and consider the first-order conditions:


L
= 0.2x 0.2y + 47 = 0
x

(4)

L
= 0.2x 0.4y + 48 = 0
y

(5)

Combining (4) and (5) yields:


x = 195, y = 5.

9. (a) The firm wants to maximize its profit:


= 10Q

Q2
Q2 8Q 5.
2

It should choose Q to satisfy

= 10 Q 2Q 8 = 0
Q

Q=

2
.
3

Checking the second-order condition:


2
= 3 < 0
Q2

(b) The new cost curve is


C(Q) = Q2 + (8 + t)Q + 5
and profit would be given by
= 10Q

Q2
Q2 (8 + t)Q 5.
2

(c) Profit would now be maximized where

= 10 Q 2Q 8 t = 0
Q

Checking the second-order condition:


2
= 3 < 0
Q2

(d) Governments tax revenue would be given by




2t
2
t2
T =t
= t .
3
3
3
4

Q=

2t
.
3

This is maximized where


dT
2 2t
=
=0
dt
3
3

t = 1.

Checking the second-order condition:


2T
2
= < 0.
t2
3

10. Since MR is just the derivative of total revenue with respect to Q, we may
find TR by integrating MR with respect to Q:

T R = M RdQ = (25 2Q)dQ = 25Q Q2 + k.


But T R(q = 0) = 0; therefore k = 0 and T R = 25Q Q2 .

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