A firm operates two plants. Plant 1 as a MC = 4q1, and plant 2 as...
A firm operates two plants. Plant 1 as a MC = 4q1, and plant 2 as a MC = 2q2. Total demand is 150 units. Firm is currently producing 40 units out of plant 1 and 110 units out of plant 2. Is the firm maximizing profits? Why or why not? What would you do differently (if anything)?
What is missing?
Homework Answers
At eqm, MC of Production is Equalized across all plants,
Now MC1= 4*40 = 160
MC2 = 2*110 = 220
So MC is not Equalized .
So firm is not Maximizing profits .
So at π Maximization,
MC1 = MC2
4q1 = 2q2
2q1 = q2 & q1+q2 = 150
So , q2 = 150-q1
2q1 = 150-q1
3q1 = 150
q1* = 50, q2* = 150-50 = 100
SO AT EQM,
q1* = 50 & q2* = 100
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