Profit-maximizing strategy to the board of directors

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Reference no: EM136302

Q. You are still a manager of a small wigest producing firm. Now there are 14 such firms (including yours)in industry. Each firm is identical; each one produces the same product and has the same costs of production. Your firm, as well as each one of the other firms, has the same total cost function, namely: total cost=200+50q where q is the output of an individual firm.

The price at which your wigest is determined by market demand, which has been estimated as P=290-(1/3)Q where Q is the sum of all the individual firms producing in this industry. So, for example, if 120 widgets are producedin industry then the market clearing price will be 250, whereas if 300widgets are producedin industry then the market clearing price will be 190.

The board of directors has directed you to choose an output level that maximizes the firm's profit. You have an incentive to maximize profits because your job and salary depend on the profit performance of this company. Moreover, you should also be able to present your profit-maximizing strategy to the Board of Directors and explain to them why producing this amount maximizes the firm's profit.

Reference no: EM136302

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