Introductory Mathematical Methods for

Economics: MME1
Problem Set 3 on Differentiation
Course Instructor - Dr. Indranil Chowdhury
15 December 2022

1. Assume that the price/demand relationship for a particular good is p = 10 − 0.005q.

Assume Fixed costs are $100 and Average variable cost per unit is 4 + 0.01q.

(a) What is the maximum profit obtainable from this product?

(b) What level of production is required to break even?
(c) What are the marginal cost and marginal revenue functions?

2. A monopolist’s Average cost function is given by AC = 10 + 20q

+ q and demand equation
is p + 2q = 20. Find expressions for the total revenue and for profit as a function of q.
Determine the value of q which maximises the total revenue. Determine also the value of
q maximising profit.
√ √
3. A function f is defined for x ≥ 0 by f (x) = e x − 2 x. Find the critical point of f and
show that it is a local minimum. What is the value of f (x)?

4. Find the critical (stationary) points of the function f (x) = x3 e−x . Determine the nature
of each critical point.

5. A firm is a monopoly for the good it produces. Its average variable cost function is q 2 + 4
and it has fixed costs of 20. The demand equation is given by p+q = 20. Find expressions,
in terms of q, for the total revenue and profit. Determine the production level q that gives
maximum profit.

6. A firm is monopoly and it has a fixed costs of 5 and average variable cost function q 4 −
q − 5q 2 . The demand equation for the good it produces is p + q = 20. Find an expression
for the firm’s profit, as a function of q, and determine the production level that maximises
the firm’s profit.

7. A firm produces a good from a raw material that costs $1 per unit. Using r units of raw
material, the firm can produce rα units of its good, where α is a fixed number such that
0 < α < 1. The selling price of the good is $2 per unit. Show the maximum profit the
1 1
firm can achieve is 2 (1−α) α (1−α) ( α1 − 1) .

8. A monopoly experiences a demand q for its product that is related to its price by qp2 = 16.
The cost to the company of supplying q units is q 2 . Determine the price and the quantity
when the firm maximises its profit.

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 9. An antique,√currently worth $10, is appreciating in value according to the formula
V (t) = 10e2 t . The present value of the money obtained by selling the antique t yrs from
now is P = V (t)e−0.1t . Find the value of t that maximises P (t).

10. A monopoly experiences a demand for q for its product that is related to its price by
qp2 = 64. The cost to comapany of supplying q units is 2q 2 . Determine the price and
quantity when the firm maximises profit.

11. A depreciating asset whose initial value is A has a value at time t equal to A(1 − st), where
s > 0 is its rate of depreciation. If the asset is sold at time t then the ’present value’ of
money raised by the sale is P (t) = Ae−rt (1 − st), r > 0, r is the bank interest rate. Find
the value of t at which P (t) = 0 and also find t when P (t) has a critical point.

12. A firm is a monopoly for the good it produces. Its average cost is q 2 + 10
q
+ 4. The demand
equation for its good is given by p + q = 20. Find expressions, in terms of q for the total
revenue and profit. Determine the production level that gives maximum profit.

13. A firm has a fixed costs of 10 and its marginal revenue is 11 − 2q and average variable
2
cost is q3 − 2q + 3. Find an expression for firm’s profit. Also find the value of q which
maximises profit.

14. The function f is defined for x > 0, by f (x) = x − x(ln x)2 . Show that its critical points
satisfy the equation (ln x)2 + 2 ln x − 1 = 0. Find the critical points. Determine the nature
of each critical point.

15. A firm is the only producer of a particular good, and the demand equation for the good
is 2p + q = 18, here p denotes the selling price and q is the quantity produced by the firm.
The firm’s fixed costs are 12 and average variable cost is 1 + 2q . Find an expression for the
profit function Π(q). Determine the value of the production q which maximises the profit.

16. The function f is given for 0 < x < 1 by f (x) = xx (1 − x)(1−x) . Show that f has one
critical point between 0 and 1 and that point is local minimum.

17. Suppose you have painting currently worth 2000 dollars, and that its value will increase
steadily at 500 dollars per year, so that the amount realised by selling the painting after
t years will be 2000 + 500t. An economic model shows that the optimum time to sell is
the value of t for which the function P (t) = (2000 + 500t)e−(0.1)t is measured. Find the
optimum time to sell and verify that is optimal.

18. A monopoly firm’s AV C = 300 Q

−10+Q and the demand function is given by Q+5P = 850
i. Find expressions for total revenue and for the profit functions as functions of Q
ii. Determine the value of Q that maximises T R.
iii. Determine also the value of Q maximising profit.

19. What are the maximum and minimum values of the function f (x) = x3 − 8x2 + 16x − 1
in the interval [0, 2].

20. Find all the points where derivative of the function f (x) = 2x3 − 9x2 + 12x in [0, 2] is
zero. Find the points in the given interval where the function attain its maximum and
minimum values.

21. Find the maximum and minimum values of the following functions:

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 (a) f (x) = 2x3 − 9x2 + 12x in [0, 3]
(b) f (x) = x sin x + cos x in [0, 2]. Given f (2) = 1.402 (approx).
(c) f (x) = x4 − 8x3 + 16x2 − 7 in [1, 4]
(d) f (x) = −2x3 + 3x2 + 12x + 9 in the [0, ∞]

22. g(x) = x3 − 6x2 + 12x − 1. Show g has only one critical point. Determine whether the
point is maximum, minimum or an inflexion.

23. Find the maximum and minimum values of x2 e−x in the interval [0, 5].