A manufacturing company produces and sells small farm tractors. Its annual fixed costs are $15 million, and
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Question:
- A manufacturing company produces and sells small farm tractors. Its annual fixed costs are $15 million, and its marginal cost per tractor is $20,000. Demand for small tractors is given by:
P = 30,000 – Q, where P denotes price in dollars and Q is annual sales.
MR = 30,000 – 2Q = 20,000
(a) Find the firm's profit-maximizing output, price, and annual profit.
(b) Assume that agriculture prices fall and the farming sector faces a mild recession. The demand for the small tractors drops to:
P = 26,000 – Q.
MR = 26,000 – 2Q
Suppose the recession is only temporary, and demand will recover soon. What price and output adjustment should the firm make during the recession?
Related Book For
Managerial economics
ISBN: 978-1118041581
7th edition
Authors: william f. samuelson stephen g. marks
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