Neco Model Questions Vol1 2023 Geography Question 45

A manufacturing firm faces the following cost and demand conditions. - Fixed cost of the plant: ₦20 000 000. - Variable cost per unit: ₦1 500. The market demand is described by the linear price function \(P = 5\,000 - 0.5Q\) where \(Q\) is the quantity demanded in thousands of units. The firm can choose between two plant sizes: 1. **Small plant** - capacity 2 000 units, additional overhead ₦2 000 000. 2. **Large plant** - capacity 5 000 units, additional overhead ₦5 000 000, and the variable cost per unit falls by 10 % because of economies of scale. Assuming the firm will produce up to the plant's capacity provided the operation is profitable, determine: (a) the profit (in millions of naira) that would be earned with each plant size; (b) which plant size the firm should adopt to maximise profit (or minimise loss).