Will the firm continue to produce engine itself

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Reference no: EM13208401

Firm A makes and sells motorcycle. the total cost of each cycle is the sum of the cost of frames, assembly, and engine. The firm produce its own according to the cost equation: Ce = 250,000 + 1000Q + .5Q^2.

The cost of frames and assemble is $2000 per cycle. Monthly demand equation P = 10,000 - 30Q

a. What is the MC of producing the additional engine? What is the MC of the production cycle? Find the firm's profit-maximizing quantity and price.

b. Now suppose the firm has a chance to buy an unlimited number of engines from another company at a price of $1400 per engine. Will this option affect the number of cycles it plans to produce? Its price? Will the firm continue to produce engine itself? If so, how many?

Reference no: EM13208401

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