Mathematics for Economics and

5.32 Business
Thus, the profit in the post tax situation tx]
d r)-R{r)-{)+
, ) - R , ( 1 ) - ) -R()-
R(T as a n
addition to the
total costt
total
also be
regarded
which indicates that
that
Ocafes the tax burden tr can

the firm
1s
The first order condition for maxima
of ,()
R(r)-C()=t
,(1)- R'(1)-C(1)-t =0 or

r(x)- 0 (note that tax

rate is positive) Since r'(r) is
f>
where r(x) is positive.
maxima at a point that is less than
s shows that , ( ) has a
value ofr ,
Thus
it can be positive
only ata
where r(1) has maxima,

then X, < X
under taxation, 1o show this we consid
if z, is equilibrium output increases) as t increases. nsider
decreases (or p,
We can also show that x,
taxation.
the first order condition under
R (xi)-C'(x)-t=0
to t, we get
Differentiating this with respect 1
dx <0
R( , ) c (a,)-1=0or dt R(,)-c"(,)
Hence x decrease as t increases.
Further, to show that > 0 , we can write
1 >0
Pf dp-ct) 10 oddi [R"(a,)-c')
dp
Maximisation of Tax Revenue function of t. Further, tax
as a
then x, can be regarded
If the tax rate t is not specified, for maximum tax revenue. The
can determine t
r e v e n u e T =t.x, is
also a function of t. We

conditions for maxima of T are

=I, + . =0 and 4T. 2+ <0

dt
<0, i.e., equilibrium output decreases as
tax
that dx =

The first order condition implies dt

rate increases.

by a Firm under Perfect Competition

5.4.3 Profit Maximisation the onuy
constant. Theretore,
is a price taker i.e. price is
A firm under perfect competition
which its profits are maximised.
before it is to choose that level of output at
option revenue of the hrm
which the firm can sell its output, then total
If p is the price at firm is a straig
is the level of output. We note that total revenue of the
R(x) p.x, where
= x
the cost function as C C(T),
We =

line passing through origin

with slope p. Assuming
-C(x) px C(x).
write the profit of the firm as mx) R{x)
= = -

0, for maximum z(note that MR p).

=

T'(x)= p-C(x) =

maximum profits.
Thus, p =
C(7) orp = MC(7) is the necessary condition for
 Maxima and Minima
The
Second order conditiom 5.33
Tx)=0-C'(x) <0, for maximum n.
This condition will hold only
be rising at the stationary point.
if
C"(x) or
a(MC()0
dx >0 at the stationary value i.e. MC must
Break-Even Point
Breahe
It can be shown that the
break-even
competitio ill occur at a level of point of a profit maximising firm under perfect
We can write output where average cost is minimum.
TR TC (for
break even)
or px =

TC or p=
or MC =
AC (: p =
MC in
Starting Point equilibrium)
bint of
The starting point a firm is the minimum
level of output at which total variable costs
(TVC) ofthe firm are ered.Therefore we have
TR TVC, (at the starting point)
px=TVC or p= VC = AVC

or MC AVC (in equilibrium)

Thus the starting point occurs at the minima of AVC.
Example 29.

A plant produces x tons of steel per week at a total cost of Rs -3x +50x +300. If the

and the
market price is fixed
m
at Rs
33,
3
find the profit maximising output of the plant
Will the firm continue production?
maximum profit.
Solution.
0
We can write R(x)= x3 and C(x) =r-3r+50x+300
L00
zx)=R{x)-c(x)=x- +3-50x-300
3 10
+3x2 50 -300

10 3

For max. , we should have r'(x)= 0 andr"x)<0

50 9x2 -180x +500=0
Now, (x) =-
10
+6x-=0
3
or

1801804-4x9x 500 180t120

X = 18
18
10
50
Thus, x =
S00
orand
3
X2 1 Or
18 50
=
6 +6-4<0 at X1
Further, r"(x) =-r+6=-
10 10 10
6 106- 4>0 at X2
10 3
 Therefore, profit maximising
maxim output uSnes
t of the plant =
o r 16

Max. profit =
-50) 9) -300- 207.41

Thus the firm is incurring loss of Rs 207.41. Since this loss is less than Rs 300 (fixe
ixed cost), the
irm will continue
production.
Example 30.
If the total cost of a firm is C=r-5x +30x + 10, where C is the total cost and xis the i
3 leve
or output, and price under perfect competition is given as Rs 6, find for what value(s) of .
profit will be maximised? Also find the value of maximum profit and comment on the ree.

Solution.
result
We can write

Mx) 6x-r+5x-30x -10

=
=- r +5x2 -24x-10

r'(r) -1*+10x-24=0 or x-10x +24 0, for

max. = T
We have =

x-6x-4) =0. x 6 and x2 4 = =

Further, r"(x) =-2x+10= -12+10=-2<0, when x =6

=-8+10 = 2>0, when * = 4
and
Thus, the profit is maximum when x = 6 units.
-46 i.e. loss of Rs 46.
Maximum profit =
-x6 +5x62 -24x6-10 =

Since this loss is greater than the loss of Rs 10, when nothing is produced, the firm will
discontinue production.
Supply Curve of a Firm under Perfect Competition the
The supply curve of a firm, under perfect competition, is
that marginal cost portion of
curve that lies above the average variable cost curve. Let pm = MC = min. AVC (average

variable cost). We can say that

() Whenp< pm, quantity supplied x 0, and
=

(ii) Whenp 2pmu quantity supplied is given by the

condition p = MC. Solving this equation
for x gives the supply function of the firm.
Example 31.
by C=r*-6x +15x +10. Find the
The total cost of a firm under perfect competition is given
supply function of the firm.
Solution.
First we find the lowest price pm below which the supply will be zero.
Total variable cost TVC= x' -6xr + 15x .. AVC= x - 6x + 15

We have V = 2x-6 0, for minima>x=3

dx
Now, p = min. AVC = 3 -6x3+15 6, below which quantity supplied will be zero.
=

Further, we write p = MC = 3x* -12x + 15 or 3x-12r + (15-p) =0

Solving this quadratic equation for x, we have

12144-1215-P)1212p-36 6 3p-9
6 6 3
 Maxima
and Minima 5.35
The

the supply function of the firm is

hus,
6+ 3p-9 when p 26,
3
and x =0 when p < 6.
Note that w e i
have ignored the negative sign because this will give values of x lying on that

of MC which lies below AVC.

portio.

Example 32.

if 1s
rho total cost of a firm is C= r -

6x +30x +20. Find the equilibrium output price

The
unit on the
at Rs 10 per
unit. What will be the effect of a specific tax of Rs 3 per
fix
equilibrium output?

Solution.

10x-r+ 6x -30x-20 +6x2 -20x-20

Profit t) =
3
r(r)= -x* +12r-20 =0, for maximum profit
x2-12x+20 = 0 or (r-10 x-2)=0 x = 10 or 2
12 =-2x 10+12 = -8<0, when x= 10
Further, ax)=-2x +
-2x2+12 8>0, when x 2 =

and
maximised when x = 10.
Profits are cost is written as
a tax of Rs 3 per unit is imposed, the total
When
C(7)=r-6x+30x+20+3x - 6 x +33x+20

1 -23x-20
6x*-33r-20=-+6x2
Profit ,()=10x-r+ 3
-x*+12x-23 0, for max. a > x
-12x+23 =0 =

Now x)=
96 or 2.4
12t144-92 _12721,
2
Thus, x =

occurs
2 equilibrium
9.6. Therefore, post-tax
<0, when
=
x
Further it can be shown that z(x)
at lower level
of output.
Firm of
5.4.4 Profit
Maximisation by a Monopoly can write the total
revenue

inverse demand
function p
=
f{x). Then we we can write
the profit
Let the firm faces as C(),
an
the cost function 0 and
xf{x). Assuming z(x) =
= conditions are
the firm as R(x) = p.X the profit maximising
C(r). As before,
function as ar) xfx)=
-

' ) <0.
Remarks: = MC(). Thus p
writtern as MR(1)
MC(x) or p1 =

condition can be
. The equilibrium on the
monopolist always operates
maximising this
that a profit competitive firm,
> 1 (note for a perfectly
MC(X) when Since p = MC(r) the same level
of
demand curve). for producing
portion of the
elastic will be higher
monopolist
that price charged by
a
mplies
output.
 5.36
2. Mathematics for Economics and Busin
Like a 1siness
perfectly of monopoly firnfirm. To show
this, we solve competitive firm, there is supply
curve a
no

the equilibrium for The solution for will

a
condition 1-MC) be
r. x

function of Pp and . This function can be regarded as a supply function onlydemand

if ni
is
constant. However, we know that often n is different at different points of the
curve.
3. If,
instead of a
specific
specific ta.
tax, an ad-valorem tax of 100v%
is imposed, we can write

X)= RCx)
1+v
The equilibrium condition then
-(x). becomes W=C(%) or
1+v
R (1+ vC(x): Note that the equilibrium condition for a specific tax i

R(x)=C(x)+t. From these conditions we can write C(r)+t (1+ v}C(7) = or

t=C{
7,Cla). Where T,
p.T,
Multiplying both sides by p.x, we get p.xt p.x.v.C(x)
= or =
=xt js

revenue under an ad-valorem tax.

tax revenue specific tax and p.x. vis tax
under a
Thus, when a specific tax and an
Since p> C'(x), under monopoly, therefore T, <T,.
the tax revenue raised by an ad-valorem
ad-valorem tax have the same effect on output,
tax. Note that 1, T, under =

tax will be the tax revenue raised by a specific

greater than
perfect competition. the profit function can be writen
4. When a profit tax of 100p% is imposed on a monopolist, conditionis given
as {x)=(1-PXR(r)-C(r). The equilibrium by
MR MC. Thus
R{x)-C(x) = 0 =
or a
that
r'(r)= (1-pXR{x)-C{«) =0 which implies
profit tax has no effect on the equilibrium output.
Example 33. 1
given to bex 500-p
=
and
The demand and cost functions of a monopolist are

level of output and

C x-59x 1315x +2000 respectively.
+
Find his profit maximising
price.
Solution.
function asp=500-x or p=1000-2x
We can writethedemand
is
Therefore, the profit function of the monopolist
- x" + 59x -1315x -2,000
ar)= (1000-2x)x
-+57x-315x-2000
0 or x-38x +105=0 for max. z

We have, r{x)= -3x+114r-315 =

(r-35r-3)=0 . r=35 or
3
Second order condition:

We have r"(x) -6x +114

=

35
=-6x35 + 114 -96<0, atx
=
=

atx 3
96> 0,
=
-6x3+114 =

35 units of the commodity are produced.

Therefore, profits are maximised when
1000-2x35 =Rs 930.
Further, the equilibrium price p
=

Example 34. function

The total cost of a monopolist is C=ar* +bx +c (a,
b, c>0) and the inverse demand
price and net revenue (profit). io
is p= p-ax a, p> 0). Find his equilibrium output,
 Mathematics for
Economics and Bsi.
Example 35.
A firm under
non-j-perfect competition has the following total cost and demand
C
20+2x+3x,
() Find the values of
p =
50- r function
p and x that maximise
1) An excise tax is
imposed @Rs 5 per unit. protit.
Compute the profit maximising
ng
x in the
post-tax situation. values ofof .p and
values
(iii) Find the rate of excise taxt that would fetch maximum tax revenue to the
gov
Solution. overnme
() Profit r(u) =50x -x2-20-2r-3x2=-4x+48x-20
Now, r'(x)= -8x+ 48 0, for max. a => * =6
Second order condition:
rr)= -8 <0, *= 6 is the profit maximising output.
Also, the profit maximising price p =50-6 Rs 44.
(ii) Post-tax situation:
Profit z(x) =50x-x2-20-2x-3x2 5x= -4x+43x-20

r'x)= -8r +43=0x=*=5.375

8
Second order condition:
X = 5.375 is the profit maximising output in post-tax situation
T"x)= -8 <0, don.
Also, price = 50- 5.375 = Rs 44.625

(1i) When rate of excise tax is Rs t per unit

Profit r,(x) =50x-x -20-2r-3r - tr = -4x +(48-tx-20
48-t
T(x)= -8x +48-t 0, for max. T*=
=

8
2
Now
taxrevenue T=| =6t
0, for T >t=24
We have =6-=
dt
max.

Second order condition:

unit.
when rate of excise-tax is Rs 24 per
Since <0, hence, Tismaximum
dt2
Example 36. are p= 20-4x
and
demand and total cost functions of a monopolist
Suppose that the imposes tax @20%
where is price x is quantity. If the government
C 4x+2 respectively, p
total tax revenue.
of sales, determine the
Solution.

We have p =P, +0.2p, =(l +0.2)}P, i or Ps

(20-4x)x
TR =P,x=*= 1.2

-2 20x-4x)-4x
20x-4r) -2
Thus, profit {r)
(20-4x)4x
1.2 1.2
=
 and IMinima
Maxima

e e
Th
5.39

Now (r) =
(20-8x)-4
1.2
=
0, for max.
20 8 x =4.8 or x = 15.2/8 = 1.9
Second order condition

)=1.2<0, T
NoW, price p= 20-4x19 = 12.4 (when x = 1.9)
is max. at x = 1.9

20 12.4
Tax r e v e n u e T = - X - x 1 . 9 = 3.93.

100 1.2
Example 37.
will
Show that a monopolist with constant total cost and downward sloping demand curve

rofits at a level of output where elasticity of demand is unity.

aximise his prof
ution.

Letp=fr)be the inverse demand function facinga monopolist and c (a constant) be his tota
be the

r(x)= f(x)+x.f'lx) -0 =0 for max.

COst.

x.f{X) -C and
profit x)
=

flx)= -x.f(r)
or
-J(a)
xfx)
=1
7 denotes
where the elasticity of demand.
Thus, = 1,
Second orader condition:

should have 7"(x) 2f'(x)+ 1yf") <

= 0.
we
Formax. ,
f x ) <-2f'(")/x will hold if either
the
above result
R.H.S of the above inequality is positive, the
Since
f"lx)<0) or if convex then f"(x)< -4f().
demand curveis concave
non-
Remarks:
under normal
conditions of production, is always
additional
cost of a monopolist, be produced only
at s o m e
Marginal commodity can there by
additional unit of a
negative since
an
maximising point, implying
MR 2 0 at the profit that lies on
cost. Thus
we shall always have have his equilibrium on any point

monopolist will
never

that a profit maximising

demand c u r v e .
of the
the inelastic portion cost
where k > 1, and his total
Example 38. ap",
monopolist is x =

the demand facing a

Suppose that
as k -> 1.
function C=ax* +bx +C. of the monopolist for the
answer to be
maximising output c are required
) Find the profit a, b and
restrictions on
the c o n s t a n t s a, answer
What with your
(4 economically meaningful? function
ronsistent

this suply
if possible? Is
function,
01) Find the supply
to part (i)?
Solution.

=
.x =ak.x
6) Total revenue TR =
px
 Exampie 39.
A monopolist with the cost function C(x) = x2 faces a demand curve x =
12-p.
i) What will be his
equilibrium price and quantity?
(i)Iffor some reason the firm behaves as though it were in a
what will equilibrium price and pertectly competitive ind... etitive industr
quantity
forgo monopoly profits and behave
be? How much money will the firm
rm reqi
requ
Solution. competitively
instead?
(i) Total revenue TR =
px =(12- x)x =
12x -2
-x
.
Profitr= 12x-
x-x =12x
dr
12-3x
dx =0 or x =
4 for
maximum T.
 Minin
na a
and
nd
Minima
Maxim1a
5.41
The

d 3<0,. the second order

condition is satisfied.
price p
=
12-4 8
Equilibrium
firm behaves
es as a
)Whenthefir perfectly competitive firm, we can write
wr TR =
px where p
is
constant

1
= pr-5r*
2
a= p -X =0 or p =Xx for maximum z
dx
n= 12-
12-:
= x, we get 12-* =x or x = 6, also p = 6
stituting p

d't-1<0, . the second order condition

is satisfied.
d2

profit, 7m 12x4-5x16=24 and

=

Monopoly

under competition,
T =6x6-x36==18
2
Profit
=
24-18= Rs 6
Profitforgone
Example40
run total cost
consists c of a number of profit maximising firms, each with a long
industry
An
function C(r) =r*+1. sketch the total cost, average cost, average
variab cost and
the same diagran
(a)On
of price (p). The industryy
marginal cost curves.

unction of the individual firm as a function

G Derive the supplysum as a function if there aren firms
of p
of the firm supplies. Obtain X,
Supply X, is the c u r v e change if the
number of firms changes?
How does the X, the (short period)
in the industry. For given n, what will be
Xa 52-p.
market demand is given by
=

will each firm earn?

c) The and what profits
and output for the industry,
equilibrium price
A
will be the M/
the long run equilibrium price with non-
a) With free entry, equilibrium price
compatible
lowest short-run number of
Determine this price and the
negative profits. run equilibrium.
in long
firms in the industry (0
This is a
Solution. C-1 =x'.
function is C= x+1 or
and vertex
a)(i) The total cost vertically upward
axis pointing
parabola with
at (0, 1). its turning point by oT 1
determine Fig. 5.13
we can
Alternatively,
whenx=0.

equating
dC = 0 x =0. Also C=1
dx
Chas a
minima atx =0.
aurther, =2>0 ..
dx
(i))Average cost is A = *+
*=t1
=1 or
=0 or x
Todetermine its turning poindr
 Second Order Condition
2
d12 dl d12
The situations of the fulfilment of the above condition is that
simplest both the
revenue and marginal product be diminishing:
the margina
Remarks:
The first order condition can also be written as
MR=w MC
MP
Which show that the two approach of profit maximisation are equivalent.

5.5 Optimal Holding Time

Let us assume that a person holds an asset with value V = Kt), which is contints
appreciating in value over time i.e. f'¢)>0. It is also assumed that the rate of a
sticn
of the asset is positive ie. g>0, but
dtdeclining i.e. dlogV <0. At what time should
d2 he
sell the asset so as to get maximum possible value? The answer would depend uponthe
of rate
appreciation of the asset in relation to the market rate of interest. For simplidity,.it s
that the cost of storing the asset is nil.
assumed
Intuitively, we can say that the asset should be retained if its rate of appreciation is greate
thanthe market rate of interest. Since the rate of appreciation of the asset is decreasing
would ultimately become equal to market rate of interest after some time, which obviousivs
the optimum time to sell.
Alternatively, we can express the present value of the asset as a function of time t and findt
so that the present value becomes maximum. If the market rate of interest is 100%
pa
compounded continuously, the present value of the asset can be written as
P Vet= f(t):"*
We want to find that value of t so that P becomes maximum.
First order condition:
dP
dt

f)-f¢)=0 or (note that e #0)

or
dlogV dlogf0)=,
=

dt dt
i.e. the rate of growth of V= rate of interest.
Second order condition:

dP="[flt)-
d2
fO))- re"f')-FO)<0
or f)-tf'¬)]<0, since second term is 0.
Since e>0, » f0)-f)]<0
 1ne. Lld

Substituting r= J )
5.45
f6We get f'(e)-Lep
s0s)-FrOP <0
The rate of
Remarks: The
growth of V is given
The rate of change of the growth of V
by dlogVf)
dt
)
is
given by
logV_fOSO)-FOP
d2
<0
(The merator iis
negative because of the second
order condition.)
Example 42.
Awine seller is in
olse store for poSsession of a
variable length particular
of time t quantity of wine, which he can sell now for RsA
a
and
then sell it at a
1e of wine is known to be higher value. The growing
the
hald sell it so that his profits are function V= Aevt. The problem is to know, when
Solution. maximised. Assume that the cost he
of storage is nil.
AsSuming the market rate of interest as
100r%, we can write the
P V.et = Aevi-t present value of wine as
Taking log of both sides, we get
logP =log A+t -rt
First order condition:
Differentiating both sides w.r.t. t, we get
dlogP
dt P dt
or
-i-r|- a -r|=0 for maximum P.
r=0 or t
42
Second order condition:

A dt2
|<0

-3/2 0 or
sa 0 t> 0. or

Example 43.
atree is planted now, its current market value at time t is V().
Assume that V is an
The interest rate is 100r% p. a., with
CTeasing function, twice differentiable and concave.
continuous
A t whatcompounding
time t should a tree planted at t = 0 be cut in order to maximise its present

value?
b) a new of the same type is planted and this
tree
when a tree is cut down,
Ppose that Assume that the rate
of interest remains constant.
Ppens at fixed times t, 2t, 3t, . .
 IVldtileillal
TUics
s and Business
Busin

Express the present value of all the trees as a geometric series. Sum the series and h
obtain the present value as a function of t. Let t* maximises this present value e
condition should t satisfy? What
Solution.
4 h e present value can be written as P = V(t).e""

for maximum P
We have="[v¢)-rV)=0
dt
[v)-rVO)]=0
time at which the tree sh.
The value of t, say f*, that satisfies the
above equation gives the ould
value.
be cut to give maximum present
Second order condition:

4dp
dt2 "v)-v'0)]-re"[v¢)-VO)J<0
V)-rV')]<0
writtenas
(b) The present value of all the trees can be
P V(te +V(t%-2" + V¢-3" +.

V(¢k"|1+e +e2.=Vte
vt)
1-et e-1

We have
P-e"-1/()-re"v()_
for maxima
dt
e-1P
Let t* satisfy this equation, then the above equation implies
V'E)=1. e
1 1-e *

Exercise 5.3 function is given by

1. For a firm under perfect competition, the total cost
will the firm continue
C 925 10
+10 +12. If the price of output is Rs 4 per unit,
production? and x is the
A firm has function given by R =
10x, where R is gross revenue
2 a revenue
2
What is
quantity sold; and a production cost function given by C 1,00,000+50( 1,000
=

-C?Find the rate of change of rw.r.t. r at x=

the expression for the profit function r = R
1,00,000 units. Ks +
that it produces at the rate ot
3. A company finds that it can sell out a certain product

per unit. It estimates the cost function to be C= 400+ 4[

X ,for x units output. of
for total profit when x units are produced.
(i) Find an expression
value of the outputx.
(ii) Find equilibrium an excise tax of 50 paise per unit of output,
(iii) If the government imposes
and tax revenue.
equilibrium output the minimum price wh
at
function, indicating clearly
the short-run supply
cost function

4. Construct costfuncto
forthcoming, for a firm with the following short-run
will be
any supply
C=x-201r +250x +125.
 M a x i m
and Minima
The

ne starting point of firm a 5.47

5.
(1
ahle costs
ariable costs are covered. If a is the lowest possible
that average
nerfoc St possible level of output at
riable cost is perfectly which total
minimum atcompetitive firm is a
total ost
the
starting point. profit m
i) If the functions of the firm is
the starting point. C=x-6x +30x +100, find the output at

the
(ii) erive supply curve of the firm.
(ii) continue production? What is the minimum price necessary to
tal cost functions eofl Pa e r f e c t l y
6. The
perfectly competitive firm is C(x), where
output. f p is the fixed x is the
leve
Find the first and second order conditions for maximum
implications. profits and explain ther

I f the profit maximising output is also output for break-even, show that average cost
is minimum at this output.

Eor a firm under perfect competition, it is given that C =

+22-4x +6 and p = 5,
7.
shere X stands for level of output, p for price per unit and C for total cost. Find
euilibrium output. What happens to this value if p decreases to3?
R and the number of units
x
finds that the total cost C, the total revenue
s. A company units produced
oroduced are related by
C =100 +0.015x and R =3x.Find the number ofunits.
120
of the company. Calculate profit when x
=

that will maximise profit

total cost of a firm under perfect competitionis
9, The
C 200+10x +2x. normal profits.
is getting only
Determine the industry price if this firm 800 8p, find equilibrium
) and faces a demand
x =

is in equilibrium
(i) If the industry is given by
the
output of the industry. company can
sell all that it produces the number
unit at which a +28x where x is
500
10. The price p per cost of production
is, C(x) =

300 2x. The -

is
function p(x) =

so that profit is
maximum.
biscuits is Rs. 20. Each packet
Find x of
of units produced. distribution of a packet
is
manufacturing
and sold per week
11.The cost of number of packets
the market and the are
sold for Rs. p in that profits
constants.
Find p so

and b are positive

where a
+b(40- p), of
X=- each. The
cost
P-20
(330 x)
price of Rs sellto
0) at a
manufacturer

maximised. . (x 2
items should the
sellx items
can
manufacturer How many
A

Rs, +10x +12.

x profit.maximum
cost and r is
items is the is total
whereC
determine
producingx Also +28x+10,
profits? cost.
make
maximum
C=r'-5x adds it to his
function ofa firm is and the
producer

per
unit, find
profit
01he total cost
unit is imposed is the price
A tax of
Rs 2 per
2,530
-
5x, where p
evel
he level output.
of output. byp
=

function is given
Ifd
the demand level.
and the price
emand

maximising output
 5.48 TheMaxim
14.A radio
manufacturer finds that he can sell Mathematics for Economics 2 3 .I f t h e

and
*75is 0.6p. The cost of radios per
week at
x
rate of Rs a
chang

Profit obtained when the production is Rs 500+15x +0.2x. Show Show

p each profit
.A
monopolist has attainedproduction is about 30 radios per week. that the where impc

Coefficient of equilibrium at maximum 2 4 .L e t p

elasticity of demand is 2.5 andpoint

a the
price
at the equilibrium.
on
demand curve Proc

equilibrium where
16. The price is Rs
20.
demand curve for the hie M
Find his s
and

Just falls to zero at product of

is a a
monopolist
of Rs 10 per unit and that the straight
line such that
1s
10,000 units. The
a
price the quank
maximum quantity (at
a
constant monopolist has no resource limitation and can zero Drie (ii
average cost of Rs 2 per unit. produce any output
which it will be sold Find the profit maximising
output, the price
and the
T7.find the monopoly profit.
profit maximzing output, at 5.

R(Q)= 1,000-202 given the following Revenue and Cost

functions
C(Q) =
Q" -590 +1,315Q+2,000
18. ABC Co. Ltd. is planning to market a new 26.

model of shaving razor. The

Conducted an opinion
poll of the retailers and it was found management
the amount x each that the relationship between
retailer would buy and price p he is willing to pay is
x =
30,000 -1,500p
The fixed cost of the
and labour
production of razors is found to be Rs 28,000 and the cost of material
required to
produce each razor is estimated to be Rs 8. What price should the
company charge from the retailers to obtain maximum profit?.
15.A shopkeeper buys tea cups at Re 1 each. He believes that, if he sells them for Rs x each,
he will be able to sell 10(12 x) tea cups. At what selling price will he maximise his total
profit?
20.The demand facing a firm is x= 256 p2 and its total cost is 0.0005 2+ 300.
4) Find the equilibrium values of price and quantity.
(ii) What is the profit of the firm in equilibrium. Will the firm continue production
(a)in short-run, (b) in long run.
21.A radio manufacturer produces x sets per week at a total cost of Rs 3x+100 |. He

75 3p, where p is price per set.

is a monopolist and the demand of his product is x
=

obtained when about 30 sets are produced

Show that the maximum net revenue (profit) is
is the monopoly price?
per week. What show that the new equilibrium price
a tax of Rs t per unit,
If the government imposes in
less than half the tax. Find the decrease in output and monopoly profit
increases by
maximum tax revenue. Show that the monopoly price
terms oft and
determine the tax for
when particular tax is imposed.
this
increases by about 33%, x+4x ++10,
10, wherep
where p
function p= 12-x* and the cost function C=-~x*+42
22.Givena demand
units of the product, determine the profit maximising
the number of unit of product on
denotes price and x
of a
tax of Rs 12 per
firm. What will be the impact
output of the results.
Interpret the
and profit?
equilibrium price
 The Maxima and Minima

23.If the demand law

law is
is p 12
5Q 5.49
-

changnge in
equilibrium
Determine price due to and the total cost is
-Q+ 302, determine the
ax) of Rs
the
equilibrium imposition of sales tax of 20%. C
imposing 2
per unit of price the
if Find the
correspond
B-ox be an inverse demand output. government
ducer, where a, B, a, b andc are function and C ax2 grants
==
24. Let p subsidy
=
and price when
constants and g>b. Findbxthe cbeofitthemaximising
+ + cost function of a
cos

a) The
profit maximis
output
producer is a monopolist.
:The producer sells in a
competitive market at fixed a
Chaw
equilibrium price higher in monopoly than in price p.
that
The demand of monopolise's a
market is p
-ox competitive market.
and he
=

tatal
to cost of ax bx" +cX +d. Show that the
-

produces output of at
he
an x a

root of 3ax output for maximum profit is the

-2b-a)x-(-c)=0. positive
26.1 ax +bx +C is the
total cost function of a
Supply function is linear. Further, show that
perfectly competitive firm, show that the
price must exceed b+2/ac if total cost are to
he covered but in order that the firm continues
production, price need exceed b. only
27. Below is stated the total cost function of a perfectly competitive firm: C= +3x +100.
25
The fixed price is Rsp per unit.
G) Find the supply function of the firm.
(ii) What is the lowest price to cover total cost?
(ii) What is the lowest price to cover total variable cost?
28.The total cost of a firm under perfect competition is C ar3- bx? + = cx + d. Find the lowest

price at which it is profitable for the firm to produce.

tons of sugar is
29. A sugar refinery has a total cost of Rs x +5x +200, when x

is the supply curve of

week. The fixed market price is Rs p per ton. What
produced per what equilibrium price will 150
What is the lowest price to cover total cost? At
the firm?
tons be produced? and if the demand law is
total cost function: C< ax +bx +c
30.If a monopolist has a

pB-ax*, show that outputfor maximum profit is

ya+3a(-b)-a
demand function is
and the
30 is C =
2x +10x +15
I h e total cost
function of a monopolist

given by p =100 -3x.

maximised.
= are
at which profits
level of output output? effect on the
Find the demand at the
equilibrium
in price
will have no

the elasticity of
decrease
h a t is a slight
increase or

At what level of
output
y equilibrium
output. function a r e
revenue of the
firm? find the total
revenue

sales is
imposed, and the
of function level of output.
where x is
For
Ifsales
(iv) tax 1 0 % total cost the respectively,
32.
32. For Certain
establishment,

83r-4x-21

and R =

C=X12x +48x+ 11
 Mathematics for Economics and Rtss
Obtain the putput for which Business
33.The demand profit is maximum.
al cost functions of a monopolist are p = 50 - 4x andd C =8x
respectively.
) If a tax
100
ta x orium quantity,
of Rs 2 per unit of quantity is imposed, find the equilibri quantity, Dri
price
and profit.
etermine the equilibrium of the monopolist if instead of specific tax, a sales
sales ax
tax ofot
25% of sales
(i) Find
is
tax revenue in
imposed.
(i) and (ii) above
34. that a tax proportional to the output sold by a monopolist will resulti in an
Prove
of monopoly price. What will be the effect on monopoly price if the tax is a
an increas
increa
raction of monopoly
given
profit?
35. (a) If p =fx) is an inverse demand function and C = C(x) is the total cost function of
a

producer, find the equilibrium condition for maximum profit if

() The market of x is perfectly competitive.

(ii) The producer is a monopolist.

Show that equilibrium price is higher and quality is lower in monopoly than
(ii)
in perfect competition.

(b) Take f)=50-x and C(x) = 5x +50 and attempt the questions (i) to (ii) ofpart

(a) above.

Hint:flx) -C'(x«) 0,fxm)- C'(xm) -Xuf(xm) > 0.

= =

36. From the past experience, the Cricket Control Board

krnows that if the average cost of
increase of Rs 5 per ticket
tickets is Rs 50 per match, 50,000 spectators turn up and for an
each spectator spends Rs 4 in
in average cost, they lose 5,000 spectators. On an average
Board. The Board
buying souvenir etc., which is also the income of the Cricket Control
has to issue 3,000 complementary passes and has to spend Rs 17,500 in making
of the tickets so as to maximise the proft
arrangements. What should be the average cost
of the Board? What would be the expected number of spectators?
Hint: p =50+ 50000-x), where x is the number of spectators who purchase tickets
5000
Further, profit r= px + 4(x + 3000)-17500.
Total number of spectators = x + 3000.
40000% Itis
s
37.The relation between sales (R) and advertising cost (x) is given by R{x)= 500+
known that gross profit is 20% of sales. r tnat
of
Determine (i) the corresponding net profit r as a function of x, (il) the value
maximises , and (ii) the maximised z.
Hint: Net profit = 0.20x R(x) - x.

at an avere
38.The market demand law is given by p dx). A monopolist produces x units
=

The mercna
r which maximises his profits.
cost of f{x) and sells to a merchant at a price
distributive costs and maximises his profits by sellingits is
1S a monopolist with constant
maximum pro
the output x produced and sold for
the market at a price p. Show that
given by the equation
thad
e
 5.52 Mathematics for Economics and Btei

Telationship profit and the number of t 1occupied apartments. What ie the

between
number of occupied apartments for maximum profit?
45 tour agency charges groups of individuals at the rate of Rs 500 per person minustRs 5
40 Rs 3,300
It costs Rs 250
plus per per
r each extra person over a group of persons.
individuals should the agency take in
erson
grou
the tour. How many
to organise and conduct oup
to maximise its profits?
function R(2) p.x and the =

*6.A firm producing for a competitive market has revenue cost co.

function C(x). The function C is strictly convex. An excise tax of Rs. f pet unit is levied
on
the firm.
x" must
(a) Obtain condition that the profit maximising level of output
a
satisfy and
and
show that r* decreases as the tax rate increases.
to x") when tax rate is t, shous
(6) If r* is the maximum level of profits (corresponding
that dr */dt = -x*.
are R(x) and C(r) respectivelv
47. The total and total cost functions of a monopolist
revenue
firm.
An excise tax of Rs t per unit is imposed on the
conditions for maximum profit.
(1) Write down the first and second order
show that x decreases as t increases.
(ii) Ifx» is the profit maximising output,
to the profit maximising output, where
ii) If pi fr) is the price corresponding
=

that it is positive.
f (x) <0, find by using chain rule and show
cost functions of a monopolist firm, ind
48. If R(x) and C(x) be the total revenue and total that the new
of Rs t per unit is imposed, show
his equilibrium condition. If a specific tax
at a
show that x decreases as the tax rate
lower level output. Also
occurs
equilibrium
increases i.e. dr/dt <0.
the equilibrium output is x, find dr/dt.
If z, is the maximum level of profit when unit is levied
before tax and P(x, t), the profit after a tax of Rs t per
49. Let P(x) be profit than before tax.f
at a lower level of output
Show that the profits after tax are maximised decreases as tax rate
under taxation, show that output
r* denotes the equilibrium output
derivatives exist.
increases. Assume that all required R(x) and Ct)
x units of output are given by
50. The total revenue and total cost of producing show that the
ad-valorem tax of 100 V% is imposed on the producer,
respectively. If an
Also show that equilibrium output
decreases as

equilibrium will occur

a lower at output.
tax rate increases.
the following
cis to be used to reflect
51. A quadratic profit
function r(x)= ars +bx +
properties:
is produced.
() Profit is negative when nothing
function is strictly concave.
(ii) The profit at a positive level of output.
The maximum profit occurs
(i) restrictions are called for?
What parameter then show that
g{L) is a production function,
demand function and x
=
13
is of labour, MPPL
52. If p= f(x) a
is marginal r e v e n u e product
Where MRPL x unis
MRPL MPPL x MR.
=
the marginal r e v e n u e of selling

of labour and MR, is

marginal physical product the profit maximising conditio
is C h(x), show that
cost function
=

of output. If the
MRPL.
also implies that w
=

MR= MC
 Minima
The
Maxima and 5.53

E3, If p 112-* 15 aemand curve and x =

10i is the production function of a firm, find the
value ofl for max1mum profit if price of input is fixed at Rs. 40. Also find the equilibrium
output and
output and price. Show that MR = MC at the equilibrium output.
firm
runction of a firm isx=2/L, where x is output and Lis labour. 1he
EA. The production
w be
taker in commodity and labour markets. Let p be the price of output and
is a price
the wage per hour.
rate
in p and w.
(i) What is the supply function of the firm? Show that it is homogeneous
Verify Enler's theorem and determine the degree of homogenety
decreases as the wage
the profit maximising value of L and show that it
i) Determine
rate increases.

maximum profits.
(ii) Find of interest is 100r%
value of a commodity is V=2,
after t years. If the rate
55.The selling for
storage cost, show
that t= f o r
compounded continuously, and there is no
p.a.
maximum present value.
value of t.
in the above question, find optimum
Ae*,
56.(a) If V that optimum t= .
=

show
V=a + bt and
the above question by
taking
(b)Repeat
1+1-
t=
that optimum
+R and show
(c) Take V=1 compounded
interest is 5% p.a.
the rate of asset is sold
after 25
value of an asset, and when the
100e2 is the value is
maximum

57. If V= show that

the present
continuously, constant. If the
A is a positive
where optimal
find the
A.e" after t
years. years,
continuously,
asset is V =

compounded
value of the optimaltime?
an annum

58. The interest is 10% per of the

asset at
that total pay
of
of
market rate
What is the rate ofgrowth is I = 200 -
3tw. Find w so

the asset. for labour

time to sell demand
the workers is
that ar
employer's
that total pay of
59.Suppose rate so
find he wage
maximised.
is
the workers 10% is imposed,
tax of burden?
It a payroll the tax
Who bear
maximised.
 ch a pte
EIGHT

INTEGRATION
e****e****ee**

[ntegration is the inverse process of differentiation. The process of finding a function F(x),
gjven its derivative fa), is known as integration or anti-differentiation. Thus if
dF= f(x), we say that F(x) is integral of fx). In terms of notations, we write this integral
dx
as fxdx= F\x)+c, where the symbol on LH.S. is an integral sign and c is an arbitrary

constant, often termed as the constant of integration. This constant is added because
F + - fl«) for any value of c.
dx
We note that f{xldx is differential of F(x), where fx) is called integrand and the symbol

dx conveys that is variable of integration. Further, since the value of

x c is not specified, the
above integral is called an indefinite integral off{x).
It may be interesting to note that the mathematicians
had developed the notions of
the later found more ready applications.
integration before differentiation, however, will always appear to concentrate first
on
Therefore, most of the textbooks on calculus
differentiation rather than integration.

Example 1.
Find the integral of

6)fx)=r, () fl)=*, (ii) sa)=£

Solution.
write the integral of flx) as
Using notations, we can

Note that dx
)

dx = e* +c
(i)
(ii) kr- ar=logx +C

between
8.1 Basic Rules of Integration differentiation and the relationship
the rules of for the integration of
the knowledge of formulae
write down the following
From
we can
cifferentiation integration,

functions.
0 Integration ofa constant: constants)
are
(where a and
c
ax +c
jadx=
 Mathematics for Economis and Busin
8.2 siness
(i) Integration of a power function:
rdx +c (where n -1)
n + 1

ii) Integration of x
0)
dr d t logx = +c (where x +

(iv) Integration of a constant multiple of a function:

(v) Integiration of the sum or difference of two functions:

JUa)+stv)i = Jfotr: Jstrx*
(vi) Integration of e
Jdx= e" +c (where az0)

e*
when a =1, we can write e dx
= +c

(vii) Integration of b*

Remarks:
dx1ogb -+C

right hand sideis

that the derivative of the
The above rules may be verified by checking
equal to the integrand on the left-hand side.
Example 2.
Evaluate the following integrals:
J+15 (ii) 15x dx
dx
(ii) 12x3-8x2 + 15x 10ix iv) e
-

(vi)
(v) j5dx
(vii) la+2) (vii)
a r - 1

(x)
(ix)

xi) be+27}x (xi) +3x°+2x+r?+r+x+1dx

Solution.

()
+15x= +15x+e
=15
. =15xc= +e

(i) 15x'dx 6
-10x+c
(ii) 12x3-8+ 15x-10x =3r-9+ 3

( i v ) e12dx
= +c
12
I n t e g r a t i o n

8.3
5
5 dx =

log5
tC

x+l b+1
(vi) +x ix a+1+ b+1 C =

(vii)
(a+2)dx = ax + 2x+c (a + 2)x + c =

(eiid J*dx=- r c
x
- 1

-b+2

()
Ba-b+2+C

(xi) Jl3+2* ix =e3x2 +C

log2
4x +3x +2x+x +x2+x+1ldx
(xäi) x3
=
(4x +3x* +2x+1+x +x2+rdx
=x+x +x*+x+log:x- +c

8.2 Methods of Integration

We shall discuss three methods of integration
(a) Integration by Substitution,
(b) Integration by Parts and
(c) Integration by Partial Fractions.
(a) Integration by Substitution rulesof integration, given above, are not directly
This. method is used when basic
substitution of a given
In such cases, the integrand is transformed (by suitable
applicable. The basic idea
form to which basic rules are applicable.
variable by a new variable) into a This method is
of function of a function (or chain) rule.
this method is the use
underlying
explained through the following example
Example 3.
Evaluate the following integrals:
() 2r+7 axdx Gix) r+5d
3x3
(i) +1rax ()
dx

(l) ax +b dx (xi)

(xii)
(iv) adx Jxlogx

(xii)
(v) ebr (20x + b) dx e
 Mathematics for Economics and
Business
(vi) eaxs +1x (xiv) Jr fdx
dx
(xv)
(vii) 4xr2 +3dx (xvi) 2log1
Solution. 21og+1
G) I 2r+7) 4xds
Put 2x +7 =u, then 4xdx = du

I= su'du = (22+7.
5+1 6
(ii) I= [(+1rax
Putx'+1 =
u, then 4x°dx =du or x°dx =
du
I=

(ii) I= (ax+by" dx
Put ax + b= u, then adx = du or dx=-du

I=[u"du=1 lax+b*
1(n+1)*an+ +C
1)
(iv) I= rdx
Put 3x2 =u, then 6xdx = du or xdx
d
I = "du ="+c=e3* +c
6
(v) I= e b"(2ax+blx
Put ax+ bx +C =u, then (2ax +bdx = du

l= le"du = e" +k (where k is constant of integration)

e+br+c
+k
(vi) I= 4 r +1x
Put +4x +5 = u, then (4x +4 dx = du

or (+1dx=du
4
A+4X+5 +C
:I=feau=reea
dr
(vii)
13x+2
 I n t e g r a t i o n

Put 3x + 2= 14,
then 3dx =
du
8.5
I du
(i J4r+3d
logu+clog(3 +2)+ e
x+3
Put =u, then 2xdx =
du or 4xdx =
2du
u2t1
I= 2 udu =2
c
I= r + 5 d
2+1 =uc-+32c
(ix)
Put x+5 =1u, then dx =
du. Also x =
u -5
I= -5du= Judu -5 u2du =2S/2_10 ,312
- 2(r+55/2-1+5/2+c 5 3
33
(x
Put +1 =
u, then 4x°dx =du or
x'dx=du

dx
(xi)

dx
Put 1+ x = u then_=du or 2du
2 x
+C

I=dr
(xi)
xlogx
Put log r = u, then dx = du

. I= 4 = log u + c = log(log x) +c

(xii)
du
Put e -e =
u, then (e +e"ix =

I= =logu +c = logle' -e)+c

(xiv) r(),.
 8.6
Mathematics for Economics and Busi
Put f(x)= u, then f'(xdx = du siness
I=
=logu+c= logf(x)+c
(xv)
Multiply numerator and denominator by e
d x Put 1-ed = u, then e"dx = du

I= =
logu +C log(1-e")+e
=

(xvi)
21o8+1| *
Multiply numerator and denominator by e-log
elog-e-logx
eog+e-og
Put eg+e-log = u, then elog -e-logz )dx = du

i.
I==logu+c= logeog+og)+c
(b) Integration by Parts
The method of integration by parts is based on the product rule of differentiation. We
know that if u and v are two functions of x, then

du)do+
dx
dxdx
+4

Integrating both sides, w.r.t. x, we get

or Judo = uo- o.du . (1)

Let u
=ft) and do =g(rhdx du
=flrkix, v=
|strx
Substituting these values in equation (1), we have

reetrta-e) Jata)d- {\Jatskarte*

or
rretaik= Joteix- frlfstrhirar (2)
Taking f(r) as the first and glr) as the second function, the above equation can be stated
in words, as: The integral of the product of two functions = First function x Integral of second
Integral of [Diferential cocficient of first xIntegral ofsecond
Note:
To apply this formula, the integrand should be expressible as a product of two functions
such that one of them can be easily integrated. This function is taken as the second function
Example 4
Evaluate the following integrals:

) re'dx (i) logx dx