Jorge owns a firm (this means he is entitled to the profits/losses) and he has to decide between

two possibilities:

? operate for the next two years and get the firm's profits/loss; ? sell the company today for $1.50 and leave the market.

You were hired to help him make a decision.

Consider the following information when solving the problem:

Jorge owns a firm (this means he is entitled to the profits/losses) and he has to decide between two possibilities: . operate for the next two years and get the firm's profits/loss; . sell the company today for $1.50 and leave the market. You were hired to help him make a decision. Consider the following information when solving the problem: Inverse demand function P(q) = 12 -8q Production Function F(K,L) = VKL Wage w = $2 Capital rental rate r = $2 The two years production plan satisfies: Demand: the firm's production is for one year only, and storage is not possible; Year 1: the firm has already rented capital, K = 2, but it needs to higher labor to produce at this period; Year 2: both capital and labor are free to be chosen; Firm value: the firm's value can be defined as the present value of the stream of profit/losses. To simplify the problem, we will assume the firm's value is the sum of profits/losses for both years. Solve the two years production plan for the firm, calculate the firm's value, and respond to Jorge if he should sell the company or opt for the production plan. Present all your calculation. Hint: You may find it helpful to know that q' + 29-3=(9-1)(92+9+3) and that q2 + q+ 3 =0 has no real (IR) roots