Question

The Hamdar's Independence_phone company (HIPC) is currently engaged in a rate case that will set rates for its area costumers. HIPC has total assets of $220,000,000. The government of Lebanon has determind that a 10% return on its assets is fair. HIPC has estimated its annual demand function as follows:

P= 350_0.08

Its total cost function is :

TC = 2,300+130

a. find the profit maximizing level of Q, the price at profit at profit maximization and the total amount of profit

b. is the amount of profit above 10% or below 10% as return on assets ?

Problem VI (5 Pts) Given: TR = 140 TC = 48 + Q +0.50? Find the amount of (Q) that maximizes profit by using II - TR - TC and check your answer by using MR = MC. Problem VII (10 Pts) The Hamdar's Independence-phone company (HIPC) is currently engaged in a rate case that will set rates for its area customers. HIPC has total assets of $220,000,000. The government of Lebanon has determined that a 10% return on its assets is fair. HIPC has estimated its annual demand function as follows: P= 350 - 0.08 0 Its total cost function is: TC = 2,300+ 1300 a. Find the profit maximizing level of Q, the price at profit maximization and the total amount of profit. b. Is the amount of profit above 10% or below 10% as return on assets? Roblem VII 15 Pts)

Answer 1

Problem 7 -:

(a)P = 350-0.08Q

TC = 2300 + 130Q. (1)

To find TR , we can use the price equation because P=AR.

P=AR=TR/Q

350-0.08Q = TR /Q

TR = (350-0.08Q)Q^{​​​​​​}

TR = 350Q -0.08Q^2. (2)

Price at eq level = MR =MC (at eq level)

To find MR and MC ,we need to differentiate TR and TC

d(TR)/dQ = MR = 350- 0.08Q

d(TC)/dQ = MC = 0+130

Equilibrium Price = MR = MC = 350-0.08Q = 130

0.08Q = 350-130

Q = 220/0.08

Q= 2750

Now put this value of Q in the Price equation

P=350-0.08Q

P = 350- 0.08(2750)

P= 350-220

P = 130 ANS (Price at profit maximisation)

Total Amount of Profit can be found out by

TR-TC approach - :

350Q-0.08Q² - (2300+130Q)

350(2750) - 0.08(2750)²- 2300-130(2750) = Profit

Profit = 962500 - 605000 - 2300 - 357500

= -2300. (It shows loss)

b) 10% return on assets = 10% of 220,000,000

= 22,000,000

The amount of profit is below 10% as the profit in part a is a negative amount showing a loss.