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A company makes and sells motorcycles. The total cost of each cycle is the costs of frames, assembly, and engine.
The cost of frames and assembly is 2,000 per motorcycle.
The company produces also makes its own engines, equation: CE = 250,000 + 1,000Q + 5Q 2. The monthly demand for motorcycles is the inverse demand equation: P = 10,000 - 30Q.
a. What is the MC of producing an additional engine? What is the MC of producing an additional cycle? Find the firm's profit-maximizing quantity and price.
b. The company has the chance to buy an unlimited number of engines from another company at a price of $1,400 per engine. Will this option affect the number of cycles it plans to produce and/or Its price? Or will the company continue to make its own engines? If so, how many?
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