3. A van conversion company has fixed capital and labor expenses of $1 .2 million per year, and variable expenses averaging $8,000 per van conversion. Recent experience suggests the following

3. A van conversion company has fixed capital and labor expenses of $1 .2 million
per year, and variable expenses averaging $8,000 per van conversion. Recent
experience suggests the following annual demand for their product: Q = 4000 – .25P
Where Q is the number of van conversions (output) and P is price. Calculate the profit-maximizing output, price, and profits. Assuming a parts shortage limits their output to 600 conversions per year, use the
Lagrangian multiplier method to calculate the profit-maximizing output, price,
and profits. c. Calculate and interpret the size of the Lagrangian multiplier. 53"?”

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