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 $8 and the marginal cost is $12 and the marginal benefit of producing Product B is $8 and the marginal cost is $2. To maximize profits, the managers of the firm should produce ______of Product A and ______of Product B.

Question

Quizplus · Accepted Answer

To maximize profits, the firm should produce more of the product that has a higher marginal benefit relative to its marginal cost. In this case, the marginal benefit of producing Product B is higher relative to its marginal cost compared to Product A. Therefore, the firm should produce less of Product A and more of Product B.

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