Mathematics for Economics and Management Chapter 2

EXERCISES OF CHAPTER 2.
Problem 1. In this problem, R(q) represents total revenue and R(q) is a function of the number q of units
sold. Find the marginal revenue function and the marginal revenue for the indicated values of q.
(a.) R(q) = 0,8q and q = 9
q
(b.) R(q) = q 15 − and q = 15
30
3 2
(c.) R(q) = −2q + 40q + 240q and q = 10

Problem 2. In this problem, c(q) represents average cost per unit, which is a function of the number q of
units produced. Find the marginal cost function and the marginal cost for the indicated values of q.
2000
(a.) c(q) = 5 + and q = 25
q
500
(b.) c(q) = 0, 01q + 5 + and q = 50
q
7000
(c.) c(q) = 0, 002q 2 − 0, 5q + 60 + and q = 15
q
Problem 3. The total-cost function for a hosiery mill is estimated by Dean Company to be

c = −10484, 69 + 6750q − 0, 000328q 2

where q is output in dozens of pairs and c is total cost in dollars. Find the marginal cost function and the
average cost function and evaluate each when q = 2000.

Problem 4. A firm has a cost function given by c = 0, 3q 2 + 3, 5q + 9 where q is the output.

(a.) How fast does c change with respect to q when q = 10 ?
(b.) Determine the percentage rate of change of c with respect to q when q = 10.
c0 (q)
Hint : The percentage rate of change of c with respect to q is × 100%
c(q)
19
Answer : (a.) ; (b.) 12, 84%
2
Problem 5. The revenue obtained from the sale of q units of a product is given by r = 30q − 0, 3q 2
(a.) How fast does r change with respect to q ?
(b.) When q = 10, find the relative rate of change of r.
(c.) When q = 10, find the percentage rate of change of r with respect to q.
r0 (q)
Hint : The relative rate of change of r with respect to q is
r(q)
4
Answer : (a.) 30 − 0, 6q ; (b.) ; (c.) 8, 89%
45
5q 2
Problem 6. The cost function for a manufacturer is given by c = p + 5000 where c is in dollars.
q2 + 3
Find the marginal cost when 10 units are produced. Round your answer to the nearest cent.
Answer : 5, 07 units

Problem 7. The consumption function C = f (I) expresses a relationship between the total national income
I and the total national consumption C. The difference between income I and consumption C is savings S
i.e S = I − C. √ √
9 I + 0, 8 I 3 − 0, 3I
Suppose that a country’s consumption function is given by C = √ where C and I are
I
expressed in billions of dollars.
(a.) Find the Marginal Propensity to Consume when income is 25 billions of dollars.
(b.) Find the Marginal Propensity to Save when income is 25 billions of dollars.
(c.) Determine the relative rate of change of C with respect to I when income is 25 billions of dollars.

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Mathematics for Economics and Management Chapter 2

dC dS
Hint : The Marginal Propensity to Consume is and the Marginal Propensity to S ave is
dI dI
Answer : (a.) 0, 77 ; (b.) 0, 23 ; (b.) 0, 028

Problem 8. Given the cost function c = c(q) where q is the output, and c(x) is the symbol of the average
dc
cost function, show that if = 0 then the marginal cost function and the average cost function are equal.
dq
Problem 9. A manufacturer determines that m employees will produce a total of q units of a product per
dr
day, then the derivative is called the marginal revenue product where r is the total revenue of this
dm
manufacturer. Consider
10m2 900
q=√ and p =
2
m + 19 q+9
determine the marginal revenue product when m = 9.
dr dr dq
Hint : = × (the derivative of the composite function with respect to m, also known as the Chain
dm dq dm
900q
Rule), where r = p.q =
q+9
Answer : $10, 71 per day.

Problem 10. Let q = q(p) be the demand function for a product, where p is the price. The revenue funtion
is given by r(P ) = p.q. Prove that
dr
= q × [1 − |εD (P )|]
dP
where εD (P ) is price elasticity of demand.
Hint : We always have εD (P ) < 0

Problem 11. Let p = 1200 − q 2 be the inverse demand function for a product.
(a.) Calculate the elasticity of demand in terms of q.
(b.) How does the quantity demanded change if price were increased by 1% when q = 10 ?
dq p dq 1
Hint : We have εD = × and pay attention to = (the derivative of the inverse function)
dp q dp dp
dq
1 600
Answer : (a.) εD = − 2 ; (b.) the quantity demanded would decrease by approximately 5, 5%
2 q
Problem 12. The Vista TV Cable Company currently has 100000 subscribers who are each paying a
monthly rate of $40. A survey reveals that there will be 1000 more subscribers for each $0, 25 decrease in
the rate. At what rate will maximum revenue be obtained, and how many subscribers will there be at this
rate ?
Hint : Let x be the number of $0, 25 decreases. The monthly rate is then 40 − 0, 25x, where 0 ≤ x ≤ 160
(the rate cannot be negative), and the number of new subscribers is 1000x. The revenue has an expression of

r(x) = (100000 + 1000x)(40 − 0, 25x)

Answer : x = 30 ; the monthly rate is $32, 5 ; the number of subscribers at that rate is 130000

Problem 13. For a monopolist’s product, the inverse demand function is P = P (q) and the average-cost
function is c(q) where q is the output and P is the price. Find the profit-maximizing output q, know that
80
(a.) P = 42 − 4q and c(q) = 2 +
q
30
(b.) P = √ and c(q) = 3
q

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Mathematics for Economics and Management Chapter 2

50 1 2500
(c.) P = √ and c(q) = +
q 4 q
Answer : (a.) q = 5 ; (b.) q = 25 ; (c.) q = 10000

Problem 14. A manufacturer can produce at most 120 units of a certain product each year. The inverse
demand equation for the product is P = q 2 − 100q + 3200 and the average cost function of this manufacturer
2 10000
is c(q) = q 2 − 40q + where q is the output and P is the price. Determine the profit-maximizing
3 q
output q and the corresponding maximum profit.
Answer : 120 units and $86000

Problem 15. The inverse demand function for a monopolist’s product is p = 700 − 2q and the average cost
1000
per unit for producing q units is c(q) = q + 100 + where p and c are in dollars per unit.
q
(a.) Find the maximum profit that the monopolist can achieve.
(b.) Show that this occurs when marginal revenue is equal to marginal cost.
Answer : (a.) q = 100 ; (b.) Show that M R(100) = M c(100)

Problem 16. For XYZ Manufacturing Company, total fixed costs are $1200, material and labor costs
combined are $2 per unit, and the inverse demand equation is
100
P = √
q
where q is the output and P is the price.
(a.) What level of output will maximize profit ?
(b.) Show that this occurs when marginal revenue is equal to marginal cost.
(c.) What is the price at profit maximization ?
Answer : (a.) 625 units ; (c.) $4
P
Problem 17. The demand equation for a monopolist’s product is q = 300 − and the total-cost function
2
is c = 0, 2q 2 + 28q + 200 where q is the output and P is the price.
(a.) Find the profit-maximizing output, and determine the corresponding profit.
(b.) If the government were to impose a tax of $22 per unit on the manufacturer, what would be the
new profit-maximizing output ? What is the profit now ?
Answer : (a.) 130 units and $36980 ; (b.) 125 units and $34175

Problem 18. A furniture company makes personal-computer stands. For a certain model, the total cost (in
thousands of dollars) when q hundred stands are produced is given by

c = 2q 3 − 9q 2 + 12q + 20

(a.) The company is currently capable of manufacturing between 75 and 600 stands (inclusive) per week.
Determine the number of stands that should be produced per week to minimize the total cost, and find the
corresponding average cost per stand.
(b.) Suppose that between 300 and 600 stands must be produced. How many should the company now
produce in order to minimize total cost ?
Answer : (a.) 200 stands and $120 per stand ; (b.) 300 stands

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