A firm is producing a joint product, Product A and Product B, with variable proportions. At its current production levels, the marginal benefit of producing Product A is $3 and the marginal cost is $2 and the marginal benefit of producing Product B is $4 and the marginal cost is $5. To maximize profits, the managers of the firm should produce ______of Product A and______ of Product B.
A)less; less
B)less; more
C)more; more
D)more; less

Question

Quizplus · Accepted Answer

To maximize profits, a firm should produce more of a product if its marginal benefit exceeds its marginal cost and less if its marginal cost exceeds its marginal benefit. Since the marginal benefit of Product A ($3) is greater than its marginal cost ($2), the firm should produce more of Product A. Conversely, since the marginal cost of Product B ($5) is greater than its marginal benefit ($4), the firm should produce less of Product B.

A Firm Is Producing a Joint Product, Product a and Product