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 output adjustment should the firm make during the recession?
New demand function is:
"P= 26000-Q"
The firm maximazes output when "MR=MC"
"MR=26000-2Q"
"MC=20000"
"26000-2Q=20000"
"2Q=6000"
"Q=3000"
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