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 $12 and the marginal cost is $15 and the marginal benefit of producing Product B is $10 and the marginal cost is $6. To maximize profits, the managers of the firm should produce______ of Product A and ______of Product B.
A)less; more
B)more; more
C)more; less
D)less; less

Question

Quizplus · Accepted Answer

The firm should produce less of Product A and more of Product B because the marginal benefit of producing Product A is less than its marginal cost, while the marginal benefit of producing Product B is greater than its marginal cost. This suggests that the firm is overproducing Product A and should reduce its output in order to maximize its profits. Additionally, increasing the output of Product B would increase the firm's profits, since the marginal benefit of producing Product B is greater than its marginal cost.

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