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Ex 05

Questions for Quantitative Method (Uni)

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8 views2 pages

Ex 05

Questions for Quantitative Method (Uni)

Uploaded by

Maria Wang
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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MA107: Quantitative Methods (Mathematics)

Exercises 5: Optimisation
For all homeworks in this course please note that no marks will be given for answers only. Always
show the method used to obtain your answers.

Please write clearly. Don’t just use formulae, but explain in a few words what you are doing.

Several of the exercises for this course also appear as exercises in the book Mathematics for Economics
and Finance, sometimes with partial solutions. No marks will be given for just copying solutions
from that book.

1. (a) Sketch the graph of the function f (x) = x3 − 9x2 + 26x − 24.
(b) On the same diagram sketch the graph of f 0 .
(c) Explain how the properties of the graph of f 0 correspond to properties of the graph of f .

2. Consider the functions:

f1 (x) = x3 − 6x2 + 9x + 2, for x in [0, 4];


3 2
f2 (x) = x − 6x + 9x + 2, for x in [0, 5];
f3 (x) = sin(x) − x cos(x), for x in [0, 3];
f4 (x) = sin(x) − x cos(x), for x in [0, 4].

(a) For each function, find its stationary points and determine their nature.

(b) For each function, find the points in the given interval where the function attains its maximum
and minimum values.

3. Suppose that Anthony and Co. is a small efficient firm, and that their cost function in a certain
production period is
C(q) = 18 + 5 q − 4 q 2 + q 3 .
Determine: (a) their fixed cost, (b) their profit function, (c) their start-up point, (d) their breakeven
point, and (e) their supply curve.
What happens to the supply curve if the firm cannot supply more than 4 units in this production
period?

4. The Privatised Grannies Corporation is a monopoly with cost function C(q) = 2 + 2q + q 2 and
the demand set for its product is D = {(q, p) | p + 2q = 8}.
Find: (a) their inverse demand function, (b) their profit function, (c) their optimal value of q, and
(d) their corresponding price.
[You should, of course, justify the assertion that, at the optimal value, the profit function has a
maximum rather than any other kind of stationary point.]

5. Suppose you have inherited an antique whose current market value is £500. Let us assume that
the market value will increase steadily at a rate of £100 per annum, and also assume that interest
on a bank deposit will be compounded continuously at the equivalent annual rate of 5%.
Write down an expression for the present value of the amount realised by selling the antique after t
years and hence determine the optimum time to sell it.

Extra exercises overleaf ...


Extra exercises
The following exercises are extra, and you are not expected to submit these with your homework.
They are meant to give you further questions to practice with. And, as some of them may be based
on old exam questions, they may give you an idea about what you can expect on the exam.
√
1. (a) Suppose you own a piece of land whose value, V (t), after t years is V (t) = e t . Assume that
interest on a bank deposit will be compounded continuously at the rate of 12.5%.
Write down an expression for the present value, P (t), of the amount realised by selling the land after
t years.
Determine the time at which the present value, P (t), is maximised. Prove that this is the optimum
time to sell.
(b) Suppose that Quality Widgets Limited is an efficient small firm with cost function

C(q) = q 3 − 10q 2 + 100q + 196.

Determine: (i) their fixed cost, (ii) their profit function, (iii) their start-up point q0 , and (iv) their
supply set.
Verify that, at the start-up point, the marginal cost equals the average variable cost, i.e. that

C(q0 ) − C(0)
C 0 (q0 ) = .
q0

2. (a) The value, V (t), of an asset at time, t, is known to be V (t) = t + 1. If the bank interest is
r = 5%, then the present value of a sale of the asset at time t is evaluated by the formula

P (t) = (1 + t) e−r t .

Find the stationary point of P (t) and hence deduce at what time the asset should be sold.
(b) Esoteric Software Ltd is a firm which faces a cost function

C(q) = q 3 − 10q 2 + 50q + 72.

The firm wishes to sell its product in a market where it has no influence over the selling price for its
product.
Define and find: (i) its start-up point q0 , and (ii) its breakeven point q1 .
The firm has an alternative market where if it wishes to sell an amount, q, it is able to command
a selling price, p, where p = 50 − 2q. At what level of output is maximum profit realised in this
market?

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