A farmer produces maize. The current market price of maize is $\,120$ Naira per bag. The farmer's total cost (TC) function (in thousand Naira) is $TC = 0.05Q^{2} + 10Q + 300$, where $Q$ is the number of bags produced.

(a) Determine the profit‑maximising output and the corresponding profit (in thousand Naira) if the farmer sells at the current price.
(b) The government introduces a price floor of $\,150$ Naira per bag, which is above the market price. Assuming the farmer can sell any quantity at the floor price, determine the new profit‑maximising output and profit.
(c) Calculate the percentage increase in profit resulting from the price floor.

Question

A farmer produces maize. The current market price of maize is $\,120$ Naira per bag. The farmer's total cost (TC) function (in thousand Naira) is $TC = 0.05Q^{2} + 10Q + 300$, where $Q$ is the number of bags produced.

(a) Determine the profit‑maximising output and the corresponding profit (in thousand Naira) if the farmer sells at the current price.
(b) The government introduces a price floor of $\,150$ Naira per bag, which is above the market price. Assuming the farmer can sell any quantity at the floor price, determine the new profit‑maximising output and profit.
(c) Calculate the percentage increase in profit resulting from the price floor.

Accepted Answer

Profit without floor = 60.2, Profit with floor = 97.7, Percentage increase ≈ 62.3%

Neco Model Questions Vol1 2021 Economics Question 40

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