ECON 104 G4 Assignment 4 (Deadline 8:00 am October 26)

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R
1. a. Show that if a 6= 0 and p 6= −1 then (ax + b)p dx = a(p+1) (ax + b)p+1 + C
R R √ R 1
b. Use part (a) to evaluate: (i) (2x + 1)4 dx; (ii) x + 2dx; and (iii) √4−x dx
c. Find F (x) if: (i) F 0 (x) = 1 x
2
e − 2x and F (0) = 1
2
(ii) F 0 (x) = x (1 − x2 ) and
5
F (1) = 12

2. Evaluate the following integrals:

R1
a. 0 xdx
R2
b. 1 (2x + x2 ) dx
R3
c. −2 12 x2 − 31 x3 dx


R2
d. 0 (t3 − t4 ) dt
R2
e. 1 2t5 − t12 dt


R3 1

f. 2 t−1 + t dt

3. A theory of investment has used a function W defined for all T > 0 by

K T −ρt
Z
W (T ) = e dt
T 0
where K and ρ are positive constants. Evaluate the integral, then prove that W (T )
takes values in the interval (0, K) and is strictly decreasing. (Hint ex > 1 + x for x > 0)

4. Use integration by parts to evaluate the following:

a. xe−x dx
R
R
b. 3xe4x dx
c. (1 + x2 ) e−x dx
R
R
d. x ln xdx

5. Find the following integrals:

R 5
a. x (2x2 + 3) dx
R 3
b. x2 ex +2 dx
R ln(x+2)
c. dx
R 2x+4
√
d. x 1 + xdx
R x3
e. (1+x 3 dx
R 5 √2 )
f. x 4 − x3 dx

6. An account has been dormant for many years earning interest at the constant rate
of 4% per year. Now the amount is $100 000. How much was in the account ten years
ago?

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7. At the end of each year for four years you deposit $10000 into an account earning
interest at a rate of 6% per year. How much is in the account at the end of the fourth
year?

8. An author is to be paid royalties for publishing a book. Two alternative offers are
made:
i. The author can be paid $21000 immediately.
ii. There can be five equal annual payments of $4600, the first being paid at once.
Which of these offers will be more valuable if the interest rate is 6% per annum?

9. A trust fund is being set up with a single payment of K. This amount is to be

invested at a fixed annual interest rate of r. The fund pays out a fixed annual amount.
The first payment is to be made one year after the trust fund was set up. What is the
largest amount that can be paid out each year if the fund is to last forever?

10. Find the total present discounted value (TPV) and future value of a constant
income stream of $500 per year over the next 15 years, assuming an interest rate of 6%
annually, compounded continuously.

11. Find the maximum and minimum of each function over the indicated interval
a. f (x) = −2x − 1 over [0,3]
b. f (x) = x3 − 3x + 8 over [-1,2]
c. f (x) = (x2 + 1) /x over [1/2, 2]
√
d. f (x) = x5 − 5x3 over [−1, 5]
e. f (x) = x3 − 4500x2 + 6 · 106 x over [0,3000]

12. Consider the function f defined, for all x ∈ [−1, 1], by


 x, for x ∈ (−1, 1)
f (x) =
 0, for x = −1 and for x = 1

Is this function continuous? Does it attain a maximum or minimum?

13. A firm that produces a single commodity wants to maximize its profits. The total
revenue generated in a certain period by producing and selling Q units is R(Q) dollars,
whereas C(Q) denotes the associated total dollar cost. The profit obtained as a result
of producing and selling Q units is, then,

π(Q) = R(Q) − C(Q)

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let R(Q) = P Q and C(Q) = aQb + c where P, a, b, and c are positive constants, and
b > 1. Find the value of Q which maximizes the profit.
p
14. A consumer’s utility function is u(x, y) = x2 y + 3 and her budget constraint
is px x+ py y = I. Assume that px , py and I are exogenously given (regardless of the
consumer’s choice).
a. Find the slope of the budget line, px x + py y = I. Draw the budget line with
intercepts.
dy
p
b. Find the slope dx
of a level curve u(x, y) = x2 y + 3 = c where c is constant.
c. Find the point (x∗ , y ∗ ) that satisfies the two conditions: (i) the two slopes in (a)
and (b) are the same and (ii) the budget constraint is satisfied: px x + py y = I.
d. Show that x∗ decreases when the price px increases, given I. Draw a curve that
describes the relationship between x∗ and px (Ignore the intercepts. This is called a
demand curve).
e. Assume now that px = 2, py = 1 and I = 3. Find the optimal choice (x∗ , y ∗ ) . Show
that in the optimal choice, there is λ∗ that satisfies
   
∂u
p
 ∂x  = λ∗  x 
∂u
∂y
py

15. Does the extreme value theorem imply that the following consumer problem has
the maximum? If it does, explain why. We assume that u(x, y) is continuous and that
px and py are prices of goods x and y.
no. Open and
max u(x, y) s.t. px x + py y ≤ I and x ≥ 0, y ≥ 0 unbounded. (range)
(x,y)

16. A firm has the following total-cost and demand functions:

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C = Q3 − 7Q2 + 111Q + 50
3
Q = 100 − P

a. Write the total profit function π in terms of Q.

b. Find the profit-maximizing Q∗ .
c. Find the maximum profit.

17. Suppose that a firm incurs the total cost C(q) when it produces q > 0, and that

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marginal cost (MC) and average cost (AC) are defined as follows:
dC(q)
M C = C 0 (q) =
dq
C(q)
AC = ( per-unit cost )
q
Assume that AC is U-shaped with respect to q (like a convex function). Show that
when AC is at the minimum point, AC = M C.