Question: Although we only discussed profit maximization as a goal of firms in this chapter, many of the tools developed can be used to illustrate other

Although we only discussed profit maximization as a goal of firms in this chapter, many of the tools developed can be used to illustrate other goals as well. To do so, assume a firm faces a downward-sloping, linear demand curve and has constant average and marginal costs.

a. Suppose this firm wished to maximize the total number of units it sells, subject to the constraint that it cannot operate at a loss. How many units should it produce, and what price should it charge?

b. Suppose this firm wished to maximize the total revenue it collects. How many units should it produce, and what should it charge?

c. Suppose this firm wished to maximize the number of units it sells subject to the constraint that it must earn a profit of 1 percent on its sales. How many units should it produce, and what price should it charge?

d. Suppose this firm wished to maximize its profits per unit. How much should it produce, and what should it charge?

e. Compare the solutions to parts a–d to the output that would be chosen by a profit-maximizing firm. Explain why the results of these goals differ from profit maximization in each case.

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