Course Name: Engineering Economics
Class:
ME 7th Section: A
Course Instructor: Abdul Majid Khan
Time allowed: 50 minutes
Quiz 02
Question No: 01 (10 Marks).
Suppose the Nestle Pakistan faces a demand curve for its product 𝐏𝐫𝐢𝐜𝐞 = 𝟐𝟓, 𝟎𝟎𝟎 −
𝟗𝟎𝐐 and the Nestle costs of production and Advertisements are 𝐂𝐨𝐬𝐭 (𝐐) = 𝟏𝟔𝐐𝟐 .Find
the following.
a. The formula for profit Π in terms of Q.
b. The First Order Condition and Second Order Condition for maximum total revenue.
c. The price & quantity that maximize total revenue and the corresponding value of
total revenue.
d. The First Order Condition and Second Order Condition for maximum profit.
e. The price and quantity that maximize profit, and the corresponding value of profit.
Question No: 02 (10 Marks)
Average Cost Minimization: Desktop Publishing Software, Inc. develops and markets
software packages for business computers. Although sales have grown rapidly during
recent years, the company's management fears that a recent onslaught of new
competitors may severely retard future growth opportunities. Therefore, it believes that
the time has come to "get big or get out." The marketing and accounting departments
have provided management with the following monthly demand and cost information:
Total Revenue
=$3,000Q - $0.006𝐐𝟐
Total Cost
= $24,200,000 + $1000Q + $0.004𝐐𝟐
a. Calculate Output (Q), Marginal Cost (MC) and Average Cost (AC) at average
cost-minimizing activity level.
b. Calculate Price (P) and Profit (π) at the average cost-minimizing activity level.
c. Discuss the above findings and interpret your results.
Best of Luck