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Determine the optimal number of plants

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In this module, it is demonstrated that some times extensive diseconomies of scale, say, due to high transportation costs, would require that the firm produce its product in a multiple of plants. Suppose a beer brewing company has determined that its total production cost is: TC = 1000 Q - 1.2 Q2 + 0 .004Q3 where Q is its annual output measured in metric tons.

A. The average hauling (freight) cost is $0.8Q; that is AFC = 0.8Q. Write the firm's average aggregated cost equation.

B. Now suppose the firm is facing the following market demand:

Q = 760,000 - 10 P

Determine the optimal number of plants that the firm should have to take full advantage of the market demand.

C. Calculate the firm's profit.

Reference no: EM13903645

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