Reference no: EM132385633
Straightforward Simple Calculus Problem
Assume there are two plants
Average production cost given by
ACj = a + Biqj, j = {1, 2}, B1 > B2 > 0.
Pant 2 is more efficient (Low Cost)
Total cost - TCj = ACj x qj =
Aqj + Biqj
1) What is the optimal qty produced by EA plant.
Total output Q = q1 + q2; qj is produced in plant j, for example
Both produced the same 600 JS at one price "P"
π1 = Pq1 - TC1, π2 = Pq2 - TC2
whose q1, q2 to maximize profit π1 + π2 s.t. q = q1 + q2
Both quantities will be positive.
Why is it possible? Shouldn't all output be made in the most efficient plant?
Note - Please outline all steps clearly.
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