Find maximum profit that can be earned by the urea industry

Reference no: EM13187007

SEMESTER FALL 2011
Microeconomics (ECO402)
Assignment No. 2
Due Date: 06-01-2012 Marks: 15
Assignment:
The Case:
Urea is used as a fertilizer in cultivation of agricultural products. In Pakistan there are very few industrial plants for the production of urea. Energy shortage has badly affected the production of these industrial plants. This situation has increased the price of urea. To provide incentives to farmers, government has decided to control the price by setting price Rs.2500 per bag. Demand and cost functions of urea industry are given below:
P = 6000-4Q
TC = 500,000 + Q2
Where Q is quantity of urea, P is price being paid by the farmers and TC is total cost which is borne by urea industry.
Requirements:
Considering the above scenario, answer the questions stated below:
A. What price would be charged and what quantity would be supplied by the urea industry in order to maximize its profit.
B. What would be the maximum profit that can be earned by the urea industry?
C. How much profit urea industry will earn after imposition of the new price by the Government?
D. Being a student of Economics, suggest what production decision urea industry should take in the short run as a result of imposition of price by the government.

Reference no: EM13187007

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