Business Mathematics-II (Final Term)

ASSIGNMENT COVER PAGE
Course Code BMT 165
Course Title Business Mathematics-II

Work out at least five sums to find out profit when marginal
Assignment Topic
revenue and marginal cost functions are known.
Exam’s Name Midterm Examination
Student’s ID 18-03-10-0922
Student’s Name Mohammed Israrul Haque Khan

Semester’s Name and
Summer 2021
Year
Course Teacher’s
Sharadindu Bikash Bhattacharjee
Name and Designation
Department’s Name Business Administration
Date of Submission August 25, 2021
FORMATTING and REFERENCING

Your assignment must meet the formatting and referencing requirements noted in the
guidelines/instructions. By signing below you are confirming that you have met those
requirements.
DECLARATION
This assignment is my own original work. No part of this work has been copied from any
other source or person except where due acknowledgement is made, and no part of the work
has been previously submitted for assessment at this or any other institution.
Student’s signature Mohammed Israrul Haque

Typed name is permitted if Date August 25, 2021
Khan
submitting via email address
1
Work out at least five sums to find out profit when marginal revenue and marginal cost
functions are known.
Marginal Revenue
Marginal Revenue is the money a firm makes for each additional sale. In other words, it
determines how much a firm would receive from selling one further good. For example, if a
baker sells an additional loaf of bread for $2, then their marginal revenue is also $2.
Marginal Revenue is an important concept as it allows profit-maximizing businesses to
identify when to stop producing further products. For example, when Marginal Revenue
exceeds Marginal Cost, it becomes a net loss for the business. This is because it is costing the
firm more to produce an additional unit than it is receiving from its sale.
That is to say, the firm loses money by producing more. This can happen to big businesses as
they start to suffer from diseconomies of scale (where they start becoming less productive
due to their increased size).
Marginal Revenue Formula
Marginal cost
Marginal cost refers to the additional cost to produce each additional unit. For example, it
may cost $10 to make 10 cups of Coffee. To make another would cost $0.80. Therefore, that
is the marginal cost – the additional cost to produce one extra unit of output.
Marginal cost comes from the cost of production. This includes both fixed and variable costs.
In the case of fixed costs, these are only calculated in marginal cost if these are required to
expand production. Variable costs by contrast are always included in marginal cost.
As we can see from the chart below, marginal costs are made up of both fixed and variable
costs. So variable costs often increase alongside marginal costs, but are not the only
component. Fixed costs can also contribute. For instance, a business may need to buy a new
machine which costs $500,000. This is a one off cost, but is required to produce more goods
and is therefore calculated within the marginal cost at a certain point.
2
Marginal cost formula
How to increase marginal revenue:

Marginal cost and revenue are intertwined, so to change one, you often need to change the
other. To increase marginal revenue, you need to decrease the marginal cost or set a higher
sale price. However, increasing marginal revenue isn't always desirable. An overly high
marginal revenue indicates that customer demand is higher than your company's supply. That
means your business may be neglecting opportunities for profit, which you can capitalize on
by increasing output.
The Cost Function
Cost is the total cost of producing output. The cost function consists of two different types of
cost:
- Variable costs
- Fixed costs.
Variable cost varies with output (the number of units produced). The total variable cost can
be expressed as the product of variable cost per unt and number of units produced. If more
items are produced cost is more.
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Fixed costs normally do not vary with output. In general these costs must be incurred whether
the items are produced or not.
Cost Function C(x) = F +Vx
The Marginal Cost
The term marginal comes into play when we need to ascertain the increase in any dependent
variable with a unit change of the independent variable. Thus, we define the marginal costs as –
If C(x) is the total cost of producing x units, then the change in the total cost if one additional unit
needs to be produced, at an output level of x units, is given by –
Similarly, we may calculate the marginal average costs as –
and so on.
The Revenue and the Profit Functions

Denoted by R(x), the revenue function represents the amount of money earned (the total
turnover) by a company, by selling x number of products. If the selling price of every unit is
equal to SP, the revenue function would be –
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R(x) = SP × x
Now if the cost function and the revenue function for x products take on the value C(x) and R(x)
respectively, then we can write the profit function P(x) as –
P(x) = R(x) – C(x).
The Consumption Functions and the Marginal Propensities
The Consumption function C(Y) relates the total consumption (or the total expenditure incurred)
C to the total income Y. We give the difference in the total income and the total consumption as
the Saving function S(Y).
Thus, we can define the following marginal propensities –
 Marginal Propensity to Consume (MPC): It is the rate of change of the total

consumption per unit change in the income –
 Marginal Propensity to Save (MPS): It is the rate of change of the saving per unit
change in the income –
Five Math Questions to Answers -

Example 1:
Weekly profit Function of a company is given by P = 1400q –q2-240,000 where q is the
number of units produced per week. Calculate the number of units to be sold to maximizing
the weekly profit.
Solution:
Differentiation of profit Function P = 1400q – q2 -240,000 dp/dq = 1400 -2q-0 = 1400 -2q 2q
= 1400 q = 700 Units
5
Example 2:
If, Demand Function is D = 160- 0.0025x and Cost function is C = 15x + 0.0025x2 Find the
profit revenue-maximizing output level
Solution:
R = D* 𝒙 Revenue Function = (160 – 0.0025 𝒙)* 𝒙 = 160 𝒙 – 0.0025 𝒙 2 Cost Function = 15
𝒙 + 0.0025 𝒙 2
At the level of profit maximizing, MC = MR MR = MC MR = 160 – 2*0.0025 𝒙 = 160 –
0.005 𝒙 MC = 15 + 2*0.0025 𝒙 = 15 + 0.005 𝒙
MR = MC 160 – 0.005 𝒙 = 15 + 0.005 𝒙 160 – 15 = 0.005 𝒙 + 0.005 𝒙 0.01 𝒙 = 145 𝒙 =
145/0.01 𝒙 = 14,500 Units
Example 3:
The total cost function for manufacturing x shoes per year is given by C(𝒙) = 525+ 150 𝒙 −
0.2 𝒙 2 Calculate the marginal cost.
Solution:
The marginal cost is C(𝒙) = 525+ 150 𝒙 − 0.2 𝒙 2 dc/d 𝒙 = MC = 150 − 0.4 𝒙
Example 4:
Using the same cost function from Exercise 3, ,
find the marginal average cost when x = 200.
Solution:
First, we need to find the average cost function
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Next, find the marginal average cost function by taking the 1st derivative of
Now, evaluate the marginal average cost function when x = 200
Example 5:
Suppose the relationship between the unit price p in dollars and the quantity demanded x is
given by the equation p = –0.03x + 750 where 0 ≤ x ≤ 25,000. Find and interpret R′(3000).
Solution:
First, find the revenue function
Next, find the marginal revenue function
Now, evaluate the marginal revenue function when x = 3000
7
The sale of the 3001st unit would produce revenue of approximately $570.

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ASSIGNMENT COVER PAGE

Course Code BMT 165

Course Title Business Mathematics-II

Student’s Name Mohammed Israrul Haque Khan

Date of Submission August 25, 2021

FORMATTING and REFERENCING

Student’s signature Mohammed Israrul Haque

Marginal Revenue Formula

How to increase marginal revenue:

The Cost Function

Cost Function C(x) = F +Vx

The Marginal Cost

Similarly, we may calculate the marginal average costs as –

The Revenue and the Profit Functions

P(x) = R(x) – C(x).

The Consumption Functions and the Marginal Propensities

 Marginal Propensity to Consume (MPC): It is the rate of change of the total

Five Math Questions to Answers -

Now, evaluate the marginal average cost function when x = 200

Next, find the marginal revenue function

Now, evaluate the marginal revenue function when x = 3000

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