ME Tutorial 12

ME Tutorial 12
Q1. The production function of a firm is estimated to be
Q = L1/2K1/2. The cost of inputs Labor (L) and Q1. The production function of a firm is estimated to be
Capital (K) are Rs.2 and Rs.4 per unit respectively. If Q = L1/2K1/2. The cost of inputs Labor (L) and
the firm producing Q has a budget constraint of Rs. Capital (K) are Rs.2 and Rs.4 per unit respectively. If
80. What is the maximum output? the firm producing Q has a budget constraint of Rs.
80. What is the maximum output?
Q2. Given the total cost function
Q2. Given the total cost function
TC = 1000 + 10Q 0.9Q2 +0.04Q3
TC = 1000 + 10Q 0.9Q2 +0.04Q3
Find the rate of output that result in minimum
average variable cost. Find the rate of output that result in minimum
average variable cost.
Q3. Using your knowledge of the relationships among
the various cost functions, complete the following Q3. Using your knowledge of the relationships among
table: the various cost functions, complete the following
table:
Q STC STFC STVC SATC SAFC SAVC SMC
1250 Q STC STFC STVC SATC SAFC SAVC SMC
10 50 1250
20 105 10 50
30 1100 20 105
40 2550 30 1100
50 30 40 2550
60 30 50 30
70 50 60 30
80 2950 70 50
80 2950
Q4. From the schedule given in the following table and
assuming that the price of Labour is Rs. 300 per Q4. From the schedule given in the following table and
labour, derive per unit Variable Cost and assuming that the price of Labour is Rs. 300 per
Marginal Cost Schedules. labour, derive per unit Variable Cost and
Marginal Cost Schedules.
1 2 3 4 5 6 7
APL 100 150 233 250 240 217 194 1 2 3 4 5 6 7
APL 100 150 233 250 240 217 194
Q5. Magik Bicycles wants to produce a new mountain
bike called Magikbike III and has forecasted the Q5. Magik Bicycles wants to produce a new mountain
following information. bike called Magikbike III and has forecasted the
Selling Price per bike = $800; Variable cost per bike following information.
= $300; Fixed costs related to bike production = Selling Price per bike = $800; Variable cost per bike
$500,000; Target profit = $200,000 = $300; Fixed costs related to bike production =
Calculate the break even quantity of the bikes to $500,000; Target profit = $200,000
meet the target profit. Calculate the break even quantity of the bikes to
meet the target profit.
Q6. ABC Limited has a product selling at a unit price of
15, with variable materials cost of 4 per unit and Q6. ABC Limited has a product selling at a unit price of
other variable costs of 2 per unit. If 5,000 units are 15, with variable materials cost of 4 per unit and
produced and sold and fixed costs are 40,000 per other variable costs of 2 per unit. If 5,000 units are
period, what is the total contribution margin and produced and sold and fixed costs are 40,000 per
the net profit? period, what is the total contribution margin and
the net profit?
Solutions:

Q1.

From the optimal condition, after entering above values, we will get following relationship: L = 2K

Q2.
Q3.

Q4.

Q5.

Q6.