a) What is the size of the loan that maximizes the farmer’s profit? Show your work. What is the farmer’s profit if he is able to secure the profit maximizing loan? b)In a diagram measuring the dollar amount of the loan along the horizontal axis, illustrate the firm’s revenue curve, cost curve and the profit maximizing dollar amount of the loan. One year a trader offers the farmer an interesting deal. The trader would lend the farmer money at the lower interest rate of 20% if the farmer agrees to sell its crop to the trader at a price of 90c ($0.90) per unit. d) Write the expression of the farmer’s profit function if he accepts the deal. Find how much money the farmer would borrow from the trader if they accepted the deal. Should the farmer accept the deal? Discuss.
a) What is the size of the loan that maximizes the farmer’s profit? Show your work. What is the farmer’s profit if he is able to secure the profit maximizing loan?
b)In a diagram measuring the dollar amount of the loan along the horizontal axis, illustrate the firm’s revenue curve, cost curve and the profit maximizing dollar amount of the loan.
One year a trader offers the farmer an interesting deal. The trader would lend the farmer money at the lower interest rate of 20% if the farmer agrees to sell its crop to the trader at a price of 90c ($0.90) per unit.
d) Write the expression of the farmer’s profit function if he accepts the deal. Find how much money the farmer would borrow from the trader if they accepted the deal. Should the farmer accept the deal? Discuss.
The profit function of a firm is the difference between the total revenue generated from the sale of the output and the total cost of production.
To maximize profits, the method of mathematical optimization renders a level of quantity produced at which the first derivative of the profit function becomes equal to zero.
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