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Firm A makes and sells motorcycles. The total cost of each cycle is the sum of the costs of frames,

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Firm A makes and sells motorcycles. The total cost of each cycle is the sum of the costs of frames, assembly, and engine. The firm produces its own engines according to the cost equation:
CE = 250,000 + 1,000Q + 5Q2.
The cost of frames and assembly is $2,000 per cycle. Monthly demand for cycles is given by the inverse demand equation:
P = 10,000 - 30Q.
a. What is the MC of producing an additional engine? What is the MC of producing an additional cycle? Find the firm’s profit-maximizing quantity and price.
b. Now suppose the firm has the chance to buy an unlimited number of engines from another company at a price of $1,400 per engine. Will this option affect the number of cycles it plans to produce? Its price? Will the firm continue to produce engines itself? If so, how many?

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a We have MC E 1 000 10Q and MC 3000 10Q Setting MR MC implies 10 000 60Q 3 000 10Q Thus Q 100 c…View the full answer


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Managerial economics

Managerial economics

ISBN: 978-1118041581

7th edition

Authors: william f. samuelson stephen g. marks

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Question Posted: January 30, 2013 01:08:22
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