A Manufacturing Company Produces and Sells Small Farm Tractors

question 13

Essay

A manufacturing company produces and sells small farm tractors. Its annual fixed costs are $15 million, and its marginal cost per tractor is $20,000. Demand for small tractors is given by: P = 30,000 - Q, where P denotes price in dollars and Q is annual sales.
(a) Find the firm's profit-maximizing output, price, and annual profit.
(b) Assume that agriculture prices fall and the farming sector faces a mild recession. The demand for the small tractors drops to: P = 26,000 – Q. Suppose the recession is only temporary, and demand will recover soon. What price and output adjustment should the firm
make during the recession?

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