Question

Julie Resler’s company is considering expansion of its current facility to meet increasing demand. If demand
is high in the future, a major expansion will result in an additional profit of $800,000, but if demand is low
there will be a loss of $500,000. If demand is high, a minor expansion will result in an increase in profits
of $200,000, but if demand is low, there will be a loss of $100,000. The company has the option of not
expanding. If there is a 50% chance demand will be high,
what should the company do to maximize long-run
average profits?

Answer 1

When cost capable Marginal Revenue it's a state of affairs once Profit is going to be maximised.

As there's a prospect of a 50% rise in demand that the demand is going to be high company ought to do to maximise long average profits by following ways in which.

To maximize profit the firm ought to increase usage of the input "up to the purpose wherever the input's marginal revenue product equals its marginal costs".So mathematically the profit-maximising rule is MRPL = MCL, wherever the subscript L refers to the usually assumed variable input, labour. The marginal revenue product is that the modification in total revenue per unit modification within the variable input. that's MRPL = ∆TR/∆L. manPL is the merchandise of marginal revenue and therefore the marginal product of labour or MRPL = MR x MPL.

the corporate ought to conjointly perform these to the maximized profit level in the long run

1.Company ought to increase their branches in an exceedingly specific space that lead to a rise in sales and generate most revenue that ends up in profit maximization

2.Company ought to increase his production level to satisfy up his returning demand so provide are going to be done as per the demand of demand.

3.company can buy machine the e as he will increase his production level

4.company ought to rent additional labour force to get an increase in production level