You are a manager of a small “widget”- producing firm. There are only two firms, including yours, that produce “widgets.” Moreover your company and your competitor’s are identical. You produce the same good and face the same costs of production described by the following total cost function: Total Cost = 200 + 50q where q is the output of an individual firm. The market- clearing price, at which you can sell your widgets to the public, depends on how many widgets both you and your rival choose to produce. A market research company has found that market demand for widgets can be described as: P = 290 – Q/3 where Q=q1+q2, where q1 is your output and q2 is your rival’s. The Board of Directors has directed you to choose an output level that will maximize the firm’s profit.
1. How many widgets should your firm produce in order to achieve the profit maximizing goal? Moreover you must present your strategy to the Board of Directors and explain to them why producing this amount of widgets is the profit-maximizing strategy.
2. Now there are fourteen firms (including yours) in the industry. Each firm is identical; each one produces the same product and has the same costs of production. Q is the sum of all the individual firms producing in this industry. How many widgets should your firm produce in order to achieve the profitmaximizing goal? Explain