WEEK 8 DISCUSSION

1.April Showers Company is a medium-sized manufacturer of sprinkler heads. The firm has recently developed a square-spraying sprinkler head that greatly improves lawn watering and requires less water than conventional circular-spraying sprinkler heads. The firm's engineers estimate the long-run total-cost function to be

LRTC = $500,000 + $400Q

where Q = output in units of 1,000 sprinkler heads. The cost function includes a return on investment of 15 percent. The firm's marketing department estimates demand will be

Q = 2,500 - 0.5P

where P is the price per 1,000 sprinkler heads.

a.Determine the profit-maximizing output and price.

b.Determine the profit at the optimum output.

c.Determine output, price, and profit at long-run equilibrium.