(d) Now suppose that the firm's contract with the upstream retailer is coming to an endand they are considering whether to extend it or not. The retailer will purchase 1000chairs per day at £50 per chair.If the firm does not extend their contract then they can sell their chairs locally andwill face an inverse demand curve P(Q) = 500 — Q.Assume that r = 16 and w= 16/3.(i) What is the firm's profit function (Q) if they sell to the local market?(ii) What is the firm's optimal output level if they sell to the local market?(iii) Is the firm better off selling to only the local market or extending the contractwith the national retailer? (Note: Assume the firm can only sell to either themarket or the retailer) 2. A firm uses capital (K) and labour (L) to produce luxury office chairs. The productiontechnology is given by Q = K ³/4L¹/4, where Q is the number of chairs produced.

Profits, in the context of business and economics, refer to the financial gains or rewards earned by…

(d) Now suppose that the firm's contract with the upstream retailer is coming to an end and they are considering whether to extend it or not. The retailer will purchase 1000 chairs per day at £50 per chair. If the firm does not extend their contract then they can sell their chairs locally and will face an inverse demand curve P(Q) = 500 - Q. Assume that r = 16 and w = 16/3. (i) What is the firm's profit function (Q) if they sell to the local market? π (ii) What is the firm's optimal output level if they sell to the local market? (iii) Is the firm better off selling to only the local market or extending the contract with the national retailer? (Note: Assume the firm can only sell to either the market or the retailer)

(d) Now suppose that the firm's contract with the upstream retailer is coming to an end and they are considering whether to extend it or not. The retailer will purchase 1000 chairs per day at £50 per chair. If the firm does not extend their contract then they can sell their chairs locally and will face an inverse demand curve P(Q) = 500 - Q. Assume that r = 16 and w = 16/3. (i) What is the firm's profit function (Q) if they sell to the local market? π (ii) What is the firm's optimal output level if they sell to the local market? (iii) Is the firm better off selling to only the local market or extending the contract with the national retailer? (Note: Assume the firm can only sell to either the market or the retailer)

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter7: Production Economics

Section: Chapter Questions

Problem 3E

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Question

(d) Now suppose that the firm's contract with the upstream retailer is coming to an end
and they are considering whether to extend it or not. The retailer will purchase 1000
chairs per day at £50 per chair.
If the firm does not extend their contract then they can sell their chairs locally and
will face an inverse demand curve P(Q) = 500 — Q.
Assume that r = 16 and w= 16/3.
(i) What is the firm's profit function (Q) if they sell to the local market?
(ii) What is the firm's optimal output level if they sell to the local market?
(iii) Is the firm better off selling to only the local market or extending the contract
with the national retailer? (Note: Assume the firm can only sell to either the
market or the retailer)

2. A firm uses capital (K) and labour (L) to produce luxury office chairs. The production
technology is given by Q = K ³/4L¹/4, where Q is the number of chairs produced.

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