Answer to Question #251726 in Microeconomics for Hopper

Question

a firm total cost are c= 4q ²,q is level of output,it can sell any number of units of output at a price 72 shillings ,however production causes damage on the industries neighbours ,the total damage TD caused depends on the industry's output i.e TD= 3Q+Qà ƒ ƒ ¢  ´,assume the company has property rights in the absence of an agreement with its neighbours.what will be its level of output??

Answer 1

Since the firm has property rights and no agreement with the neighbors, the damage caused to the neighbors during production is negligible and does not affect the output level.

Property rights mean that the firm has legal ownership of the resources, and they can use them however they please.

Total cost

$c = 4q^2$

Since $q$ is the level of output and the firm is free to sell the output at 72 shillings, then the profit is

$Profit = 72q - 4q^2$

Therefore differentiating the equation

$f(x) = 72q - 4q^2$

$f(x)^1 = 72 - 8q$

Therefore, the level of output in the absence of an agreement is $= 72 - 8q$