1. Kingston Components, Inc. produces electronic components for cable TV systems. Given vigorous import competition, prices are stable at $4,500 per unit in this dynamic and very competitive market. Kingston's annual total cost (TC) and marginal cost (MC) relations are:

TC = $7,000,000 + $500Q + $0.5Q2

MC = TC/Q = $500 + $1Q

where Q is output.

Suppose the Occupational Health and Safety Administration (OSHA) has recently ruled that the company must install expensive new shielding equipment to guard against worker injuries. This will increase the marginal cost of manufacturing by $100 per unit. Kingston's fixed expenses, which include a required return on investment, will be unaffected.

A.

Calculate Kingston's profit-maximizing price/output combination and economic profits before installation of the OSHA-mandated shielding equipment.

B.

Calculate the profit-maximizing price/output combination and economic profits after Kingston has met OSHA guidelines.