2014

SUBMITTED TO:
SIR NAEEM AHMED

SUBJECT:
MICRO-ECONOMICS

SUBMITTED TO:
MUHAMMAD AWAIS (SP14-BBA-032)
AADIL SAEED MINHAS (SP14-BBA-014)
SAQIB (SP14-BBA-008)
ZAHRA ALI (SP14-BBA-021)
SYEDA SUMBAL NAQVI (SP14-BBA-013)
AAMIR SHAHID (SP14-BBA-001)
IJAZ TARIQ (SP14-BBA-027)

[FINAL PROJECT]
DERIVING ALL THE COST CURVES AND REVENUE CURVES FROM A QUADRATIC EQUATION AND THEN APPLY PROFIT MAXIMIZATION RULE
QUESTION-1
The company's cost function for constructing x number of widgets in Dollars ($) is C= (200+10x+0.2x2) and the company Revenue Function in
Dollars ($) is R = (40x - 0.1x2)
Determine the company's maximum profit.
putting value of quantity as x

Average Revenue or Total Total Variable Fixed

Quantity MR MC Profit/Loss AFC AVC ATC
Price Revenue Cost Cost Cost
5 39.5 197.5 255 55 200 -57.5 40.0 11 51.0
10 39 390 38.5 320 120 200 13 70 20.0 12 32.0
15 38.5 577.5 37.5 395 195 200 15 182.5 13.3 13 26.3
20 38 760 36.5 480 280 200 17 280 10.0 14 24.0
25 37.5 937.5 35.5 575 375 200 19 362.5 8.0 15 23.0
30 37 1110 34.5 680 480 200 21 430 6.7 16 22.7
35 36.5 1277.5 33.5 795 595 200 23 482.5 5.7 17 22.7
40 36 1440 32.5 920 720 200 25 520 5.0 18 23.0
45 35.5 1597.5 31.5 1055 855 200 27 542.5 4.4 19 23.4
50 35 1750 30.5 1200 1000 200 29 550 4.0 20 24.0
55 34.5 1897.5 29.5 1355 1155 200 31 542.5 3.6 21 24.6
60 34 2040 28.5 1520 1320 200 33 520 3.3 22 25.3
65 33.5 2177.5 27.5 1695 1495 200 35 482.5 3.1 23 26.1
70 33 2310 26.5 1880 1680 200 37 430 2.9 24 26.9
75 32.5 2437.5 25.5 2075 1875 200 39 362.5 2.7 25 27.7
80 32 2560 24.5 2280 2080 200 41 280 2.5 26 28.5
85 31.5 2677.5 23.5 2495 2295 200 43 182.5 2.4 27 29.4
90 31 2790 22.5 2720 2520 200 45 70 2.2 28 30.2
95 30.5 2897.5 21.5 2955 2755 200 47 -57.5 2.1 29 31.1
100 30 3000 20.5 3200 3000 200 49 -200 2.0 30 32.0
105 29.5 3097.5 19.5 3455 3255 200 51 -357.5 1.9 31 32.9
110 29 3190 18.5 3720 3520 200 53 -530 1.8 32 33.8
115 28.5 3277.5 17.5 3995 3795 200 55 -717.5 1.7 33 34.7
 GRAPH
1,200.00
1,150.00
1,100.00
1,050.00
1,000.00
950.00
900.00
850.00 Average Revenue or Price
800.00 Total Revenue
750.00
MR
700.00
Total Cost
650.00
Variable Cost
600.00
550.00 Total Fixed Cost
500.00 MC
450.00 Profit/Loss
400.00 AFC
350.00
AVC
300.00
ATC
250.00
200.00
150.00
100.00
50.00
0.00
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115
 Total Revenue
The function of total revenue is given in the question that i.e. R = (40x - 0.1x2)
It is calculated by placing different values of x in function

TOTAL REVENUE
3500

3000

2500

2000

Total Revenue
1500

1000

500

0
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115

By increasing the quantity (x) total revenue also increases

 Average Revenue
It is calculated by dividing TR with quantity.
Mathematically can be defined as
AR=TR/Q

AVERAGE REVENUE OR PRICE

45

40

35

30

25
Average Revenue or Price
20

15

10

0
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115
 Marginal Revenue
It is calculated by the following formula
MR= Change in total revenue/change in quantity

MR
45

40

35

30

25

20 MR

15

10

0
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115
 Total Cost
The function of total cost is given in the question that i.e. C= (200+10x+0.2x2)
It is calculated by placing different values of x in function

TOTAL COST
4500

4000

3500

3000

2500

2000 Total Cost

1500

1000

500

0
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115

By increasing the quantity (x) total cost also increases.

 Total Fixed Cost
It is also given in the cost function that i.e. C= (200+10x+0.2x2)
It always remains constant as the quantity increases

TOTAL FIXED COST

250

200

150

Total Fixed Cost

100

50

0
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115
 Total Variable Cost
It is calculated by subtracting total fixed cost form total cost
TVC=TC-TFC

VARIABLE COST
4000

3500

3000

2500

2000
Variable Cost

1500

1000

500

0
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115
 Marginal Cost
It is calculated by the following formula
MC= Change in total Cost/change in quantity

MC
60

50

40

30
MC

20

10

0
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115
 Profit/Loss
It is calculated by subtracting total cost from total revenue
Profit/Loss=Total Revenue-Total Cost

PROFIT/LOSS
800

600

400

200

0 Profit/Loss
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115
-200

-400

-600

-800
 Average Total Cost
It is calculated by dividing TC with quantity.
Mathematically can be defined as
ATC=TC/Q

ATC
60.0

50.0

40.0

30.0
ATC

20.0

10.0

0.0
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115
 Average Fixed Cost
It is calculated by dividing total fixed cost with quantity
AFC=TFC/Q

AFC
45.0

40.0

35.0

30.0

25.0
AFC
20.0

15.0

10.0

5.0

0.0
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115
 Average Variable Cost
It is calculated by dividing total variable with quantity
AVC=TVC/Q

AVC
35

30

25

20

AVC
15

10

0
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115
 Profit Maximization
It shows the place where total revenue is greater than total cost and marginal cost is equal to marginal revenue.

Profit Maximization

 TR > TC
 M C= MR

By using both approaches we see in table that by taking X=50 (Quantity), the firm gets maximum Profit i.e. $ 550

PROFIT MAXIMIZATION
4500 60
Loss
4000
50
3500

3000 40 Total Revenue

Profit
Total Cost
2500
30 MC
2000
MR
1500 20

1000
10
500

0 0
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115