Purchase Solution

The profit maximization

Not what you're looking for?

Ask Custom Question

1. John's Lawn Mowing Service is a small business that acts as a price taker (MR = P). The prevailing market price of lawn mowing is $20 per acre. John's costs are given by

total cost = .1q^2 + 10q + 50

where q = the number of acres John chooses to cut a day

a. How many acres should John choose to cut in order to maximize profit?
b. Calculate John's maximum daily profit
c. Graph these results and label John's supply curve

2. Would a lump-sum profits tax affect the profit-maximizing quantity of output? How about a tax assessed on each unit of output?

3. Universal Widget produces high-quality widgets at its plant in Gulch, Nevada for sale throughout the world. The cost function for total widget production (q) is given by

total cost = .25q^2

Widgets are demanded only in Australia (where the demand curve is given by q = 100 - 2P) and Lapland (where the demand curve is given by q = 100 - 4P). If Universal Widget can control the quantities supplied to each market, how many should it sell in each location in order to maximize total profits? What price will be charged in each location?

4. Young's theorem can be used in combination with the envelope theorem to derive some useful results

a. Show that dl(P,v,w)/dv = dk(P,v,w)/dw. Interpret this result using substitution and output effects

b. Use the result from part (a) to show how a unit tax on labor would be expected to affect capital input

c. Show that dq/dw = -dl/dP. What is the interpretation of the result?

d. Use the result from park (c) to discuss how a unit tax on labor input would affect quantity supplied

Purchase this Solution

Solution Summary

The profit maximization is assessed.

Solution provided by:
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
Recent Feedback
  • "I've posted a similar question for another course. It's post 657940, and it's a practice problem that I'd like to use for the final exam. Your help will be greatly appreciated. "
  • "thank you!"
  • "Thank you again Jayant. You are super fast. "
  • "Thank you Jayant. You are appreciated. "
  • "Again, thank you Jayant. You are wonderful. "
Purchase this Solution


Free BrainMass Quizzes
Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.