Written Assignment Unit 4
Department of Computer Science, University of the People
ECON 1580-01 Introduction to Economics - AY2025-T1
Heba Sharaf
October 02, 2024
The firm demand curve: P = $500-10Q
Marginal Cost of the firm: = $100
No fixed Cost
a) If you want to maximize profit the marginal cost curve will intersect with marginal
revenue curve that is marginal revenue equals to marginal cost (MR=MC) (Rittenberg,
L., & Tregarthen, T. (2009).
Formula:
MR=MC
TR = P*Q i.e. 500-10(Q^2)
Now we need to find MR which is MR = 500-20Q
Next MR=MC in order to find Q:
500-20Q = 100
20Q= 500-100
20Q/20 = 400/20
Q=20
The firm is going to produce 20 units.
b) In order to find price, we need to find value of Q: P= 500 - 10=*20 that will give us
P= 500 – 200 = 300 The charge price will be $300
c) The formula to find profit is P = TR – TC, but we need to find total revenue and total
cost:
TR = Q * P i.e. 20 units * $300 = $6000 is the total revenue
To find total cost we say TC = TVC
TVC = AVC * Q = MC * Q
Now TC = MC * Q = 100 * 20 = $2000
To find profit we say P = TR – TC i.e. 6000 – 2000 = $4000
The profit per day will be $4000.
d) The $1000 will affect the price as it is fixed so the price will not change and the
output also will not change.
e) The tax is fixed so it not going to affect the output.
f) The $1000 will affect the profit of the firm since it is a fixed cost so we will have to
subtract the $1000 tax from the profit that is 4000 – 1000 = $3000 that is the profit the
firm will have now after tax.
g) The imposed $100 will change the marginal cost thus MC = 100 + 100 = 200 now
MR = MC will be
500 – 20Q = 200
20Q = 500 – 200 = 300/ 20 will give us 15 units per day.
To find the price we say P = 500 – (10*15) = 500 – 150 = $350 per unit that is what
the firm will charge.
h) To find profit maximization we say MC=MR.
MC was $100 so TC = MC * Q i.e. TC = 100 * 15 units = $1500
The output will be 1500 / 100 = 15 units
i) To find profit we say P = TR – TC i.e. 350*15 = $5250
P = 5250 – 3000 = $2250 that will be the new profit so the profit will be reduce.
References
Rittenberg, L., & Tregarthen, T. (2009). Principles of Economics. Flat World
Knowledge. https://open.lib.umn.edu/principleseconomics/
