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Assignment 1 (Profit Sales-Revenue Maximization)

This document contains 5 questions regarding profit maximization, revenue maximization, and constrained revenue maximization for different firms. Question 1 involves calculating outputs, prices, profits, and revenues under different objectives for a firm with demand and cost functions. Question 2 examines royalty payments for an author based on revenue versus the publisher's profit maximization objective. Question 3 finds prices, quantities, and profits with different objectives and a constrained objective. Question 4 analyzes objectives of profit maximization, revenue maximization, and constrained revenue maximization. Question 5 examines a biscuit factory's outputs, prices, profits, and revenues under profit maximization, revenue maximization, and constrained revenue maximization objectives.

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152 views

Assignment 1 (Profit Sales-Revenue Maximization)

This document contains 5 questions regarding profit maximization, revenue maximization, and constrained revenue maximization for different firms. Question 1 involves calculating outputs, prices, profits, and revenues under different objectives for a firm with demand and cost functions. Question 2 examines royalty payments for an author based on revenue versus the publisher's profit maximization objective. Question 3 finds prices, quantities, and profits with different objectives and a constrained objective. Question 4 analyzes objectives of profit maximization, revenue maximization, and constrained revenue maximization. Question 5 examines a biscuit factory's outputs, prices, profits, and revenues under profit maximization, revenue maximization, and constrained revenue maximization objectives.

Uploaded by

ayushsapkota907
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Assignment‐I (Profit and Sales‐revenue Maximization)

1. Tamakoshi Electronics Limited has following demand and cost functions:


P = 2000 – 10Q (demand function)
C = 1000 + 200Q (cost function)
a) Calculate the price (P), output (Q), total profit (), and total revenue (R) of the firm under
the objectives of
i. Profit maximization
ii. Sales revenue maximization
iii. Sales–revenue maximization subject to a profit constraint of Rs.79, 500.
b) Which, one of the objectives mentioned above, increases social welfare and why?
c) What would be the effect on price, quantity and profit of the firm under the objective
of profit maximization, if fixed cost increases to Rs. 12000?

2. Bhattarai has written a new managerial economics book for which he has received
royalty payments of 20% of total revenue from sales of the book. Because his royalty
income is tied to revenue, not profit, he wants the publisher to set the price (in Rs.) so that
total revenue is maximized. However, the publisher’s objective is maximum profit. If the
total revenue function is
TR=100,000Q–10Q2 and the total cost function is TC=10,000+20Q+Q2
Determine
a) The output rate that will maximize total royalty revenue and the amount of income that
Bhattarai would receive.
b) The output rate that would maximize profit to the publisher. Based on this rate of
output, what is the amount of royalty income that Bhattarai would receive?

3. Given the following demand function and cost function


Q = 50 – 0.5P and TC = 10 + 0.5Q2
Find the price and total profit under the objectives of
a. Profit maximization
b. Sales–revenue maximization and
c. Sales–revenue maximization with a profit constraint of Rs.350
d. If fixed cost decreases by Rs.4, what would be the impact on price, quantity and profit of
the firm under profit maximizing objective?

4. Firm XYZ has the following information on price and cost estimated by an
econometrician:
P = 100 – 4Q and TC = 16 + 4Q + 8Q2
i. If the objective of the firm is to maximize profit, what quantity should it sell and at what
price? What is the total profit it earns?
ii. If the objective of the firm is to maximize revenue, what quantity should it sell and at
what price? What is the amount of profit or loss the firm has at this price?

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iii. The management of the firm decides that the firm must earn Rs. 68 as the minimum
profit to keep the shareholders satisfied. What quantity should the firm produce despite its
objective to maximize sales‐revenue? What price should it charge?
iv. Under which of these objectives the social welfare is maximum? Why?

5. A biscuit factory, operating in Kathmandu Valley has following demand and cost
functions.
P = 40 – 0.4Q, TC = 280 + 8Q, where Q = output in units, P = Price in Rs.
If the company wanted to maximize profit, what is the price‐output combination and total
profit and revenue? The management of the company realizes the need for capturing
market. Therefore, it started to promote its product with the strategy of sales revenue
maximization instead of profit maximization. What will be the price–output combination,
total profit and maximum TR under the condition of sales revenue maximization?
The shareholders of the company did not like market share capture strategy (sales‐ revenue
maximization) followed by the management. The shareholders showed strong
dissatisfaction against the management in its Annual General Meeting (AGM).They argued
that management should not be given opportunities for free play in the company. The
shareholders meeting consensually decided to put restriction with minimum profit of Rs.
340. Under this condition, what is the optimum price‐output combination and total
revenue?

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