CH 3 Worksheet

Chapter Three –Worksheet
Part-1: Unconstrained Optimization

Question-1:
Assume XYZ textile factory produced different textile products at a total cost function given by:
= + + , where x is the number of units produced in thousand meter square. The
price at which each unit can be sold is given by (in thousand birr): = − . Determine
the production level x at which the profit is maximum. What is the price per unit and the total
profit at this level of production?
Question-2:
‘Victoria Fashion Show’ designer presents a ‘Fabulous’ women’s miniskirt will cost Birr 2, 000
for overhead plus Birr 70 for each miniskirt made. The price he can get for the miniskirt depends
on how fabulous they are. From experience, the marketing manager has estimated the following
demand function: = 262 − 4 , where is the number of miniskirts sold. How many
miniskirts should the manufacturer produce in order to maximize his profit? (Assume that all the
miniskirt produced will be sold). Also obtain the total profit.
Question-3:
Assume a Heineken Breweries S.C sells two kinds of beer products: Walia and Bedele, which are
partial substitutes for each other. If the price of Walia increases then the demand for Bedele rises.
The prices of the two beers (in Birr) are and and their respective demand functions are
= − + and = − + .
What price should Heineken charge for Walia and Bedele to maximize its total sales revenue?
Question-4:
The total cost function of a firm producing two products is
( , )= + − − − +
Where x and y denote their units. Find the value of x & y which minimize ( , )? And also the
minimum cost?
1
Question-5:
A firm produces two products which are sold in two separate markets with the demand schedules
= − . and = − .
The firm faces the total cost function

= + + + .
How much of each product should the firm sell if it wants to maximize total profits? What will
the maximum profit level be?
Question-6:
A monopoly operates two plants with costs given by
= + . and = + .
The monopoly faces market demand given by

= − . , where = + , then
a) Calculate the profit maximizing output level of the two plants of the monopolist?
b) Find the price of the product monopolist will sold?
c) Calculate the monopolist maximum profit?
Question-7:
Total cost in Birr for a particular firm operation is given by:

( )= − + +
Where represents the number of units made. Determine
i) The marginal cost of the seventh unit. iii) The minimum amount of marginal cost
ii) The minimum amount of average variable cost
Question-8:
In a perfectly competitive market, assume a firm sells a photo frame at a fixed price of Birr 200
per unit. For this production the firm uses labor (L) and capital (K) and buys the two inputs L and
K at prices of Birr 20 per unit and Birr 50 per unit respectively at a production function
. .
=
Determine the quantity combination of labor and capital that the firm uses in order to maximize
its profit?
2
Part-2: Constrained Optimization
 NB: Use both substitution and Lagrange multiplier Method for each questions
Question-1:
Addis Pharmaceutical Factory (APF) S.C is the largest pharmaceutical manufacturing company
in Ethiopia. Suppose the profit function of this company is given
( , )=− + − + +
When A represents the amount tablets of Ampicillin (in million) and P is the amount tablets of
Paracetamol (in million) produced per year. However due to an insufficient resource they can
only make a total of 25 million Ampicillin and Paracetamol per year. So,
a) How many tablets of Ampicillin and Paracetamol will give the realistic maximum profit
for the company?
b) Calculate the new maximum profit if the factory can make a total of 30 million
Ampicillin and Paracetamol per year?
Question-2:
The production function for a firm is given by:

. .
=
Suppose that the cost of labor is Birr 20 per unit and the cost of using capital is Birr 30 per unit.
Then
A) Determine the amount of labor and capital that should be used in order to minimize the
cost to produce 1458 units of output?
B) Calculate the minimum cost of producing 1458 units?

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Chapter Three –Worksheet

Part-1: Unconstrained Optimization

The total cost function of a firm producing two products is

The firm faces the total cost function

A monopoly operates two plants with costs given by

The monopoly faces market demand given by

Total cost in Birr for a particular firm operation is given by:

The production function for a firm is given by:

B) Calculate the minimum cost of producing 1458 units?

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