Scenario 10.4:
The demand for tickets to the Katy Perry concert (Q) is given as follows:
Q = 120,000 - 2,000P
The marginal revenue is given as:
MR = 60 - .001Q
The stadium at which the concert is planned holds 60,000 people. The marginal cost of each additional concert goer is essentially zero up to 60,000 fans, but becomes infinite beyond that point.
-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:

Question

Quizplus · Accepted Answer

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.

Scenario 10.4: The Demand for Tickets to the Katy Perry Concert (Q)