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DRQ #2 AGEC 317 4pts September 5 , 2013

DRQ #2 AGEC 317 4pts September 5 , 2013.

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DRQ #2 AGEC 317 4pts September 5 , 2013

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  1. DRQ #2AGEC 317 4pts September 5, 2013 • 21st Century Insurance offers internet-order automobile insurance to preferred-risk drivers in the Los Angeles area. The company is the low-cost provider of insurance in the market. But, the company believes its $750 annual premium cannot be raised in order to remain competitive. Subsequently, its rates are expected to remain stable, hence P=MR=$750. The total cost relationship for the company is given as: TC = $2,500,000 + $500Q + $0.005Q2, where Q corresponds to the number of policies sold. (a) Calculate the profit-maximizing number of policies sold. (b) Calculate the company’s optimal profit level. (c) Calculate the profit margin. 2 pts ½ pt ½ pt

  2. DRQ #2AGEC 317 4pts September 5, 2013 • Suppose that U = ln y + 3y, where U is utility and y is income. (a) Derive the marginal utility of income (b) Is this utility function consistent with the law of diminishing marginal utility?

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