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Figure: Marginal Costs 1
-(Figure: Marginal Costs 1) This figure shows the production costs of two firms that produce steel beams. If these two firms represent total production in the industry, how should they allocate the production of 100 beams to minimize costs?
A) Firm 2 should produce all of the output.
B) Firm 1 should produce all of the output.
C) Firm 1 should produce 50 beams, and Firm 2 should produce 50 beams.
D) Both Firm 1 and Firm 2 should produce some output, but Firm 2 should produce more than Firm 1.

Question

Use the following to answer questions:
Figure: Marginal Costs 1 
-(Figure: Marginal Costs 1) This figure shows the production costs of two firms that produce steel beams. If these two firms represent total production in the industry, how should they allocate the production of 100 beams to minimize costs?
A) Firm 2 should produce all of the output. 
B) Firm 1 should produce all of the output. 
C) Firm 1 should produce 50 beams, and Firm 2 should produce 50 beams. 
D) Both Firm 1 and Firm 2 should produce some output, but Firm 2 should produce more than Firm 1.

Quizplus · Accepted Answer

To minimize costs, production should be allocated such that the marginal cost of producing the last unit is equal across both firms. If Firm 2 has a lower marginal cost for additional units, it should produce more than Firm 1.

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