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ECONOMIC APPLICATION OF DERIVATIVES

(Acknowledgement: Sums numbers 1 to 62 have been taken from: Elementary Methods of Mathematical Economics written by Dr. (Mrs) Pratibha Borwankar, Seth Publishers Pvt. Ltd., Mumbai 1995)

1. The demand curve for a commodity is p = 36 2d2. The average cost curve is given as c = 15d. Find the equilibrium output and price under profit

maximization assumption 2. The demand curve for a commodity is p = 50 4d. The average cost is zero. Find the necessary condition for maximum profits. 3. The demand curve for a commodity is p = 10 5d. The average cost is c = 3. Find the TC, MC, TR, MR, maximum profits. Write the necessary condition and sufficient conditions for maximum profits. 4. The total cost function is C = 2q 2q2 + q3. Find the minimum AC and verify that at optimum output AC = MC. 5. The total output varies with the use of labour according to the function which is given to be Q = 10 + 12L L2. Find the average product and marginal product of labour. What should L be to maximize output ? Also find total output, marginal product and average product of labour at this point. 6. Given C = x3/3 3x2 + 9x +16 and R = 21 x2, does the producer sell in a monopolistic or a competitive market ? Find the output for maximum revenue. What is the maximum value of R? Find the output that maximizes his net revenue. 7. Find the optimum level of production of a firm whose revenue and cost functions are given as follows: R = 30x x2 and C = 20 + 4x. (Note: x is the level of output). 8. Explain the economic significance (in mathematical terms) of the following values of price demand elasticities: 1, 0, infinity, 4 and 9. The demand function is given to be p = 90 1/5d. Find the level of output for which MR will be zero. What will be the price of this output ? If the total cost function is C = 20 + 2q2 20q, find the equilibrium output and price. 10. For a monopolist firm, the cost function is C = 0.004x3 + 20x + 5000 and the demand function for this firm is p = 450 4x. Find the profit maximizing output. At this level show that MC = MR (Note: x = quantity).

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11. If the monopolist faces a demand curve d = 20 p/3, at what level would his total revenue be maximum ? What would be the price of this output level ? Find out the value of total revenue for this output level. 12. Given p = 30 5d, find the elasticity of demand when p = 5. Also find the edp when d = 4. 13. Prove the mathematical conditions to be satisfied for profit maximization and also for loss minimization. 14. If AR = 20, the elasticity of demand with reference to price is 2. Find MR and comment on it. 15. The demand function faced by a firm is p = 500 0.2x and its cost function is given to be C = 25x + 10000. Find the output at which the profits of the firm are maximum. Also find the price it will charge. (note x = quantity) 16. Given the demand curve p = 10 4d, find the TR and MR of this firm. What is the demand when MR is zero? 17. Given p = 16 d2/2, find the TR function, MR function, R(1), R(5). At what demand would MR be zero ? 18. If the demand curve for sugar is p = 8 d, find the respective price elasticity of demand at P = 1 and P = 3 19. Show that edp is always 1 for the demand curve (d)(p) = alpha, where alpha is a constant. 20. Compute price elasticity of supply for the supply function: S = 20 0.05p + p1/2 for p = 4, P = 16 and p = 100. 21. If the total cost function is C = f(x), where x is the output, find: elasticity of total cost (K). Show that the elasticity of average cost is (K 1). Verify your answer for the total cost function which given as ax2 + bx. 22. A firm has a total cost function C = (1/10)(x3) 3x2 + 50x + 100. The firm sells its product in a competitive market and the fixed market price is Rs 100/3 per unit of x. Find the out for maximum net revenue. 23. Find the optimum output of a firm whose TR and TC are given as R = 30x x2 and C = 20 + 4x. Find the value of the MR at the optimum output. 24. The demand curve is p = 12 3x. The average cost is c = 2x2. Find the necessary and sufficient conditions for determining output for maximum profits, the price, TR, TC and profit at this point.

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25. A firms total cost is Rs (0.1x2 + 5x + 100) when x units are produced per week. The fixed market price is Rs P per unit of x. What is the supply curve of the firm? At what price will 150 units be produced ? 26. The total cost function is C = 15x 6x2 + x3, where x is output and C is the total cost of output. Find the AC function and MC function. At what output is AC minimum ? What is the minimum AC ? At what output is MC minimum ? What is the minimum MC ? At what output are average and marginal costs equal ? 27. The average cost curve of a good is given to be c = 1 + 120x3 6x2, where x is output. Find minimum AC. Verify that minimum AC is equal to MC 28. The production function of a commodity is q = 10x1 + 5x2 x12 2x22 + 3x1x2. Find the marginal productivity of X1 and X2. What is MPX1 and MPX2 if x1 = 1 and x2 = 5 ? 29. The production function of a commodity when three inputs A, B and C are used in quantities a, b and c is : q = 10a + 20b + 8c a2 + 2b2 c2ab. Find the marginal productivities of A, B and C. Determine these productivities if we are given that a = 1, b = 2 and c = 3. 30. The employment of a man-hours on b acres of land gives a wheat cultivating farmer q = 2(12ab 5a2 + 4b2) bushels of wheat. Find the AP and MP curves for labour when 10 acres are cultivated. 31. Find the marginal product and the average product of L and K when we are given L = 2 and K = 4 for the following function : q = 4L2 + 15LK + K2. 32. Find the MPL and MPK for the following production function: x = 1.01L 0.75C0.25, where x is total putout, L is labour and C is capital. 33. Find the MPL and MPK for the following production function: x = L 0.42C0.58, where x is total putout, L is labour and C is capital. 34. If the utility function u = f(x, y) is given by : u = x2 + xy + y2, find MUx and MUy. Evaluate them for x = 1 and y = 2. 35. If the demand for a good X1 is given by the demand law x1 = a1 a11P1 + a12P2, find the direct price elasticity (e11) and the cross price elasticity (e12). 36. Let the demand function for good x1 be x1 = 63.3 1.9P1 + 0.2P2 + 0.5P3, find the partial elasticities of demand for x1 wrt P1, P2 and P3. Estimate the values of e11, e12 and e13 given that P1 = 10, P2 = 8 and P3 = 7.

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37. Consider four commodities A, B, C and D. The prices of these commodities are PA, PB, PC and PD respectively. The estimated demand for commodity B is given by the following function: DB = 49.07 0.02PA 0.36PB - 0.03PC + 0.03PD, find eAA, eAB, eAC and eAD. Evaluate these elasticities given PA = 1, PB = 2, PC = 3 and PD = 1. 38. Consider two commodities C and D. The prices of these commodities are P C and PD respectively. The estimated demand for commodity C is given by the following function: DC = 1.30 0.05PC + 0.01PD, find eCC and eCD. Evaluate these elasticities given PC = 2 and PD = 1. 39. If the consumption function for good X is: x = (177.6)(y-0.023)(Px-1.04)(P0.939), where y is the aggregate real income, PX is the price of good X and P is the average retail price of all other commodities, find the income elasticity and the two partial elasticities of demand for X. 40. The demand for bicycles in a country is estimated to be B = 11.2K 8.6P 379, where B is the annual total purchase of bicycles, K is an index of purchasing power ad P is the price of bicycles. Find the purchasing power elasticity, the price elasticity of demand (purchase) of bicycles. Evaluate these elasticities if we are given K = 100 and P = 45. 41. The demand functions for two goods X1 and X2 are estimated as follows: and X2 respectively. where P1 and P2 are the prices of good X1 and good Determine whether the goods are competitive or

complementary. 42. Find the partial marginal costs functions of good X and good Y for the following joint cost function: C = 0.1x2 + 5xy + 0.02y2 + 25 43. Consider three commodities X1, X2 and X3 with prices P1, P2 and P3 respectively. If the demand for X3 is X3 = 10.3 + 0.1P1 + 0.1P2 - 0.3P3, find the partial elasticities of demand for X3 wrt to P1, P2 and P3 and evaluate them if we are given P1 = 8, P2 = 9 and P3 = 7. 44. The demand curves for products X1 and X2 are P1 = 1 X1 and P2 = 1 X2. The total cost of jointly producing these goods is C = X1X2 and the profit function is Z = X1 X12 + X2 - X22 X1X2. Find the necessary and sufficient

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conditions for maximum profits and determine the production of these commodities at this level. 45. If z = xy, then maximize this function subject to the constraint x + 3y = 5. 46. Find the maximum of z = 10x + 20y x2 y2, subject to 2x + 5y = 10. 47. Given the utility function of an individual as: u = 4x 1 + 17x2 x12 x1x2 3x22 and the budget constraint Y = x1 + 2x2 = 7, find his purchase of the two goods for maximum utility. 48. Find x and y which maximizes u, where u = xy + 2x, subject to 4x + 2y = 60. 49. Find x and y which maximizes u, given u = xy subject to x + y = 6. 50. Given that the production function is q = f(x, y) and that the total cost constraint is C = r1x + r2y + b0, where x and y are inputs, r1 and r2 are the input prices and b0 is the fixed cost of production. Find the necessary and sufficient conditions for maximum output subject to the cost constraint. 51. Given the cost function C = r1x1 + r2x2 + b0 and a constraint q = f(x1, x2), find the first order condition for minimum cost for given q at q0. 52. The production function is q = xy and the cost constraint is 50 = 2x + y + 10. Determine the maximum output q subject to the given cost constraint. 53. If the cost function is C = 5x + 2y + 10, minimize the total cost of output q = 40, given the production function q = xy. 54. Assume a production function of the form q = 10 1/x1 1/x2. If the price of the product is P and we are given P = 9 and if r 1 and r2 are the input prices of X1 and X2 respectively and we are given r1 = 1 and r2 = 4, then assuming perfect competition, find the equilibrium output, input requirement and profit subject to the given production function. 55. The production function of the firm is q = 5 x1-1/2 x2-1/2 and the price of the product is P and we are given P = 2, and r1 and r2 are the input price and we are told r1 = 1 and r2 = 8, if the firm sells in a competitive market, find the input demands, the quantity produced and the profits earned by the firm, subject to the given production function. 56. The demand curves for two commodities are: P1 = 28 3x1 and P2 = 22 2x2. The joint cost function is C = x12 + 3x22 + 4x1x2. Find the necessary and sufficient conditions for maximum profits. Determine the prices, total cost and profit when profit is maximum.

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57. The demand curves for two commodities are: P1 = 7 and P2 = 20. The joint cost function is as follows: C = x12 + 3x22 + x1x2. Find the necessary and sufficient conditions for maximum profits. Determine the prices, total cost and profits at the level of maximum profits. 58. Let the utility function be u = xy. Given PX = 1 and PY = 2 and income I = 10, find the demand for X and Y which maximizes utility. 59. Let the utility function be u = x2y3. Given PX = 1 and PY = 4 and income I = 10, find the demand for X and Y which maximizes utility. 60. Let the utility function be u = xy. Given PX = 1 and PY = 9 and income I = 10, find the demand for X and Y which maximizes utility. 61. Given U = (x + 2)(y + 1) and PX = 2 and PY = 5 and income I = 51. Find the demand for X and Y which maximizes utility. 62. The production function of a firm is : . The price of the

product is P = 9 and the input prices are PX1 = 1 and PX2 = 4. Find the input demands, the total production and the profits made by the firm under the assumption that the firm wants to make profits by selling under competitive conditions.

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