You are the manager of GetMoney Inc. and you produce cardboard boxes. Suppose that you hired a consultant for your company to estimate the demand for your cardboard boxes. Your consultant determines that you are operating your business in a monopolistically competitive environment. You collect data on the price and quantity of boxes sold and send it to your consultant, who then estimates the inverse demand equation as P= 7–(1.5)*Q. Please also assume that you have a fixed cost of $1and that the variable cost as estimated by your consultant is V(Q) = 3Q + (0.5)∗𝑄2.
a)What is the quantity that maximizes profits based upon the above information? What are the corresponding maximum profits that you can earn? (Please use graphs to support your answer.)
b)Considering your answer to part a, would you conclude that the profits that you earned were made over the short-run or long-run? What happens in the long run to your profits in this type of market structure?(Please use graphs to support your answer).
c)Considering your answer to part b, what would you expect to happen to your profits if you operate your business in a monopoly? Why or why not?
2) Production processes and cost theory
You are an efficiency expert hired by a manufacturing firm that uses K and L as inputs. The firm produces and sells a given output. If w = $5, r = $11, MPL= 40, and MPK= 60.
a. Please indicate whether your firm is employing the optimal mix of labor and capital.(Please use graphs to support your answer.)
b.Considering your answer in part a, if you concluded that your firm is not using the optimal mix of labor and capital, what must your firm do in order to employ the proper mix of labor and capital? (Please use graphs to support your answer.)
II. Essays
3) Production theory and cost processes this question, please find an article from a mainstream news source pertaining to the same firm you selected for your term project that discusses economies of scale and scope in the market for the product. Please also discuss whether you think that the graphs and noted shocks are consistent with the zoom lecture on this topic. (please use graphs to support your answer).