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Economics

Firm A makes and sells electric cars. The total cost is the sum of the costs of frames, assembly, engines including batteries. The firm makes its own engines according to this formula:

CE = 500,000 + 2,000Q + 10Q^2. The cost of the frames and assembly is $4000 per electric car. Monthly demand for the electric cars is P = 20,000 – 60 Q.

a) What is the marginal cost of producing an additional engine? What is the firm’s optimal profit maximizing quantity and price?

b) Suppose the firm can purchase as many engines that it wishes from a new company for $2800 per engine. What number of electric cars will the firm decide to build if it wishes to be efficient? What price will it charge for the electric cars?

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Microeconomics, Economics

Category:- Microeconomics
Reference No.:- M91228484

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