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A firm is planning to build one of two types of plants. The short-run total cost of Plant A is CA = 80+2QA+0.5QA 2 while the short-run total cost for Plant B is CB=50+QB 2.
(a) Determine the marginal cost functions for each of the 2 plants, and plot them in one graph.
(b) If an output of 8 units is planned, which plant should be built? How large of an output is required to justify building Plant A?
(c) Suppose that the firm already has built both plants. If planned output is sufficiently large, the firm should use both facilities, and just one (which one?) if the planned output is sufficiently small. Explain why.
(d) Suppose planned production is 22 units. How should the firm divide the output between the two plants so as to minimize the overall expense of production?
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