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URD101
ECO 401 ASSIGNMENT# 2 COMPOSED BY TARIQ SARRAF,FAISALABAD.
NAME: TARIQ ABBAS
ECONOMICS (ECO401)
ASSIGNMENT NO.02
QUESTION NO.1:
PART 1
A. Use the above information and calculate marginal cost (MC) and average cost (AC) at each level of student’s strength.
ANSWER:
Number of students |
Total cost (Rs.) |
Marginal cost (MC) |
Average cost (AV) |
20 60 100 150 200 250 |
30,000 30,000 30,000 30,000 30,000 30,000 |
0 0 0 0 0 0 |
1500 500 300 200 150 120 |
It can be explained by the following diagram drawn with the help of above schedule.
- What the values of marginal cost (MC) and average cost (AC) are showing? Interpret in your own words
ANSWER:
.
In the schedule, in column 1 number of students (output) is shown. In column 2, total cost (Rs) is shown. In column 3, marginal cost (MC) is shown, which keeps zero at all output level because MC is the change in total cost resulting from the unit change in the number of students (output) in other word it is additional cost which raise when the Q raise but here in this scenario additional cost is not incurred. In column 4, average cost (AC) is shown, which decreases up to 250th unit of output.
QUESTION NO: 2
PART 2
A. What will be the maximum possible number of students who will take this course and maximum price for this course?
Answer:
The maximum possible numbers of student who will take this course are 300
The maximum price for this course will be Rs.1500
B. What will be the profit maximizing / loss minimizing level of output (students) for Mr. Kashif?
Answer:
The maximum profit is Rs.27000 at 180Q i.e. level of output (students)
This profit will be for Mr. Kashif.
C. Is this E-business profitable or not for Mr. Kashif? Give your answer by calculating profit/loss value
.
ANSWER:
Yes E-business is profitable for Mr. Kashif because he enjoys profit of Rs.27000.
It can be explained with the help of following diagram.
CALCULATION OF PROFIT:
TR = P * Q
= OQAP
TC = AC * Q
= OQBC
P = OQAP – OQBC
= ABCP
OR
TR = P * Q
= 600*180
= 108000
TC = AC * Q
= 450*180
= 81000
We know that:
Profit = TR – TC
= 108000 – 81000
= 27000
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