A competitive firm produces identical outputs at two different plants. If the marginal cost at the first plant is above market price and marginal cost at the second plant is less than market price, then to increase profit the firm should
A)decrease output in both plants.
B)increase output in both plants.
C)increase output in the first plant and decrease it in the second plant.
D)decrease output in the first plant and increase it in the second plant.

Question

Quizplus · Accepted Answer

Since the marginal cost at the first plant is above market price, it is not profitable to produce more output from the first plant. On the other hand, since the marginal cost at the second plant is less than market price, it is profitable to produce more output from the second plant. Therefore, the best choice to increase profit would be to decrease output in the first plant and increase it in the second plant.

A Competitive Firm Produces Identical Outputs at Two Different Plants