Question
A firm produces two goods: widgets (X) and woozles (Y). Its profit function is given by: P= 55X - 2X 2 - XY - 3Y
A firm produces two goods: widgets (X) and woozles (Y). Its profit function is given by:
P= 55X - 2X2- XY - 3Y2+ 100Y
and its maximum output capacity is X + Y = 17.
(a)Use the Lagrangian method to calculate the output mix the firm should produce.
(b)Estimate the effects on profits if output capacity is expanded by 1 unit.
(c)You are hired by the firm to evaluate a proposal from its Engineering Department that the firm's output capacity be expanded to 33. Do you agree with the proposal? If not, what output capacity would you recommend?
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Managerial Economics
Authors: Mark Hirschey
12th edition
9780324584844, 324588860, 324584849, 978-0324588866
