3.3 Three firms have identical revenue and profit functions with the same general shape as those in Figure 7.3. Firm 1 is a private sector firm operated by an owner-manager who wishes to maximize profit.

Firm 2 is managed by an income-maximizing manager whose pay is proportional to the firm’s revenue.

Firm 3 is a government-owned firm that has been instructed to maximize the amount of employment, L, subject to the constraint that revenue must not be negative. To increase q, L must increase. Which of these firms produces the most, which the least, and which is in the middle? Show the output level of each firm in a diagram.