Scenario 10.5:
A firm produces garden hoses in California and in Ohio. The marginal cost of producing garden hoses in the two states and the marginal revenue from producing garden hoses are given in the following table:
California Ohio
Qc MCc Qo MCo Qc + o MR
1 2 1 3 1 24
2 3 2 4 2 20
3 5 3 6 3 16
4 9 4 8 4 12
5 16 5 12 5 8
6 24 6 17 6 4
-Refer to Scenario 10.5. How many garden hoses should be produced in California in order to maximize profits?

Question

Quizplus · Accepted Answer

To maximize profits, we want to produce where MR = MC.

For California: 
At Qc = 1, MR = $24 and MC = $2, so producing 1 hose in California results in a profit of (24-2) = $22. 
At Qc = 2, MR = $20 and MC = $3, so producing 2 hoses in California results in a profit of (20-3) = $17. 
At Qc = 3, MR = $16 and MC = $5, so producing 3 hoses in California results in a profit of (16-5) = $11. 
At Qc = 4, MR = $12 and MC = $9, so producing 4 hoses in California results in a profit of (12-9) = $3. 
At Qc = 5, MR = $8 and MC = $16, so producing 5 hoses in California results in a loss of (8-16) = -$8. 
At Qc = 6, MR = $4 and MC = $24, so producing 6 hoses in California results in a loss of (4-24) = -$20.

Therefore, the optimal quantity for California is 3, where MR = MC in California.

Scenario 10.5: A Firm Produces Garden Hoses in California and in Ohio