Assignment 2 Solution ECO404 Managerial Economics 2016

Assignment No 2 solution will be opened on Feb 3, 2016 and due date of assignment submission will be Feb 9, 2016.

PROBLEM # 1: Maximize Profit (π) = 14X + 9Y Subject to the following constraints: 4X + 2Y + SA = 30 1X + 1Y + SB = 20 3Y + SC = 31 The corner points are given as:

[one_third]Corner points[/one_third][one_third]X[/one_third][one_third_last]Y[/one_third_last]

[one_third]A[/one_third][one_third]6[/one_third][one_third_last]0[/one_third_last]

[one_third]B[/one_third][one_third]5[/one_third][one_third_last]2[/one_third_last]

[one_third]C[/one_third][one_third]3[/one_third][one_third_last]4[/one_third_last]

[one_third]D[/one_third][one_third]0[/one_third][one_third_last]6[/one_third_last]

Assignment 2  Solution 

From all this information, algebraically solve the linear programming problem while finding the profit (Rs.) level at each point. Also indicate profit maximizing corner point.

PROBLEM # 2: The Water and Power Development Authority (WAPDA) has recently published the following estimates of demand and supply relations for electricity:

QD = 70,000 – 20,000

P QS = 30,000P

Assignment 2  Solution 

a) Calculate the perfectly competitive industry equilibrium price/output combination.

b) Assume that the industry output is organized into a cartel. Calculate the industry price/output combination that will maximize profits for cartel members. (Note: As a cartel, industry MR=P=3.5 – 0.0001Q and MC=P=0.00003Q)

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Fall 2015_ECO404_2