An analyst is trying to determine the optimal production level, q, that maximizes Firm 1's profit, subject to the constraint that Firm 2's profit is held constant at a specific level, k.
Firm 1's profit function (the objective function) is: π₁ = 20q - t
Firm 2's profit function (used for the constraint) is: π₂ = 12q + t - q²
The constraint is: π₂ = k
To solve this, the analyst uses the substitution method to create a new objective function that depends only on the variable q. Which
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CORE Econ
Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
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