Question

Suppose you are a policy-maker your ultimate goal is to maximize the social welfare. There is a hardware firm producing a product, say laptop. This firm produces one kind of laptop with respect to its technical specificătions but with different colours. Suppose the firm sets the same price,p. for a laptop regardless of its colour.

 • Does this firm overproduce or underproduce? Explain.

 • What kind of strategy would make the firm produce in a way to maximize the social welfare?

Answer 1

Question:

Answer:

Social Welfare:

Social welfare means  societal effort to help people achieve and maintain physical, emotional, and financial well-being. Social welfare is not the same as standard of living but is more concerned with the quality of life that includes factors such as the quality of the environment (air, soil, water), level of crime, extent of drug abuse, availability of essential social services, as well as religious and spiritual aspects of life.Social welfare systems provide assistance to individuals and families through programs such as health care, food stamps, unemployment compensation, housing assistance, and child care assistance.

Overproduce:

Overproduction, oversupply, excess of supply or glut refers to excess of supply over demand of products being offered to the market. This leads to lower prices and/or unsold goods along with the possibility of unemployment.

Underproduction:

The production of less than enough to satisfy the demand or of less than the usual amount.

Here as per firm's strategy , the objective of the firm is to maximize the social welfare. So, a firm can fulfill this objective by producing and selling a product at minimum/reasonable price. A firm can not sell the goods at minimum/reasonable price until the firm minimize its total cost. So, for minimizing the total cost firm need to produce the goods at full capacity and optimal use of resources and its can not be possible at underproduction. So, firm is overproduce.

The Strategy to make the firm produce in a way to maximize social welfare:

Welfare maximization refers to the policy which looks after the welfare of the society and its people. Its main focus is to provide opportunities to all people equitably. This ensures that there is fair distribution of goods and services among the rich and the poor.

On one side, shareholder value maximization proponents say the purpose of business is maximizing financial returns to shareholders. On the other, many and often quite disparate companies (and others) say that social purpose is the key to business in society. Rather than one single right way to generate profit and/or social welfare from business, we suggest that there is a continuum of possibilities.

A company maximize the social welfare by producing the best Product at a reasonable price. Here the firm should to discover, develop and provide innovative products and services that save and improve lives around the world by the optimal use of resources and inputs (labour and capital). Company should produce the best eco-friendly with the maximum and new innovative products by the the innovative and creative idea of production. For this firm, it should design a laptop with numbers of add-ons innovative features with the minimizing the side effects on the human lives at minimum/ reasonable price..

Firm should take care about the CO2 emission (environment), labor's benefits and compensation. Firm should provide a good compensation with a good social securities to the work force. Firm should use the renewal energy,echo-friendly technology and promote the sustainable growth during the production. So firm should take care all about the product features, environment, resources, cost and price to maximizing social welfare:

Use of these way/strategy make the firm produce in a way to maximize social welfare: