Determine optimal number of plants that firm should have

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Reference no: EM1370973

Q. "In this module, it is demonstrated that sometimes extensive diseconomies of scale, say, due to high transportation costs, would require that firm produce its product in a multiple of plants. Suppose a beer brewing company has determined that its total production cost is: TC = 10,000 Q - 12 Q2 + .004Q3 where Q is its annual output measured in metric tons.

A. average hauling (freight) cost is $8Q; AFC = 8Q. Write firm's average aggregated cost equation.

B. Now suppose firm is facing following market demand: Q = 7,600,000 - 100 P. Determine optimal number of plants that firm should have to take full advantage of market demand.

C. Calculate firm's profit.

D. Compare firm's profit with multiple plants with its profit with a single plant.

Reference no: EM1370973

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