A multiplant monopolist can produce her output in either of two plants. Having sold all of her output she discovers that the marginal cost in plant 1 is $30 while the marginal cost in plant 2 is $20. To maximize profits the firm will:

A) produce more output in plant 1 and less in the plant 2.
B) do nothing until it acquires more information on revenues.
C) produce less output in plant 1 and more in plant 2.
D) produce less in both plants until marginal revenue is zero.
E) shut down plant 1 and only produce at plant 2 in the future.

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Alicia Espinosa · Accepted Answer

Final Answer : C, Explanation :  To maximize profits, the firm should produce in the plant with the lower marginal cost until it reaches the capacity of 60,000 fans. Beyond that point, the marginal cost becomes infinite, so the firm should produce less output in that plant and allocate more output to the plant with the lower marginal cost. In this case, since the marginal cost in plant 2 is lower, the firm should produce more output in plant 2 and less in plant 1. Therefore, Choice C is the correct answer.

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