HW chap 9

Ifsothentheprofitmaximizingquantitytoproduce

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Unformatted text preview: setting the marginal cost of producing chairs equal to the price of chairs: MCC = PC 25 + 2QC + QB = 90 2QC = 65 – QB QC = 32.5 – 0.5QB. (2) Substituting (1) for QB in (2), the profit­maximizing quantity of chairs is: QC = 32.5 – 0.5(35 – 0.5QC) QC = 32.5 – 17.5 + 0.25QC 0.75QC = 15 QC = 20. Substituting this quantity for chairs back into (1), the profit­maximizing quantity of benches is: QB = 35 – 0.5(20) QB = 35 – 10 QB = 25. Profit when producing both benches and chairs is: π = PBQB + PCQC – (50QB + (QB)2 + QBQC) – (25QC + (QC)2 + QCQB) π = 120(25) + 90(20) – (50(25) + (25)2 + 25(20)) – (25(20) + (20)2 + 20(25)) π = 3,000 + 1,800 – 1,250 – 625 – 500 – 500 – 400 – 500 π = $1,025. e z to.mhe c loud.mc gr a w- hill.c om/hm.tpx? todo= pr intvie w 5/14 1/15/14 Assignme nt Pr int Vie w Next, suppose Noah and Naomi only produce benches. If so, then the profit­maximizing quantity to produce where price equals the marginal cost of production for benches is: MCB = PB 50 + 2QB = 120 2QB = 70 QB = 35. Profit when producing only benches is: π = PBQB – (50QB + (QB)2 ) π = 120(35) – (50(35) – (35)2 ) π = 4,200 – 1,750 – 1,225 π = $1,225. Next, suppose Noah and Naomi only produce chairs. If so, then the profit­maximizing quantity to produce where price equals the marginal cost of production for chairs is: MCC = PC 25 + 2QC = 90 2QC = 65 QC = 32.5. Profit when producing only chairs is: π = PCQC – (25QC + (QC)2 ) π = 90(32.5) – (25(32.5) + (32.5)2 ) π = 2,925 – 812.5 – 1,056.25 π = $1,056.25. Profit when producing neither benches nor chairs is zero: π = 0. Comparing profit when producing both benches and chairs, when producing only benches, when producing only chairs, and when producing neither benches nor chairs, Noah and Naomi should produce 35 benches and 0 chairs. Now suppo...
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This note was uploaded on 01/22/2014 for the course ECO 3352 taught by Professor Ax during the Fall '13 term at Troy.

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