Reference no: EM13199603
A firm has two factories for which costs are given by:
Factory#1: C1 (Q1) = 10Q1 (exponent of Q1=2)
Factory#2: C2 (Q2) = 20Q2 (exponent of Q2=2)
The firm faces the following demand curve:
P = 700 - 5Q
where Q is total output - i.e., Q = Q1 + Q2.
a. On a diagram, draw the marginal cost curves for the two factories, the average and marginal revenue curves, and the total marginal cost curve (i.e., the marginal cost of producing Q = Q1 + Q2). Indicate the profit-maximizing output for each factory, total output, and price.
b. Calculate the values of Q1, Q2, Q, and P that maximize profit.
c. Suppose that labor costs increase in Factory 1 but not in Factory 2. How should the firm adjust (i.e., raise, lower, or leave unchanged) the following: Output in Factory 1? Output in Factory 2? Total output? Price?
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