Use the following to answer questions: Figure: Marginal Costs 1
-Figure: Marginal Costs 2 This figure shows the production costs of two firms that produce bird feeders. If these two firms represent total production in the industry, how should they allocate the production of 200 bird feeders to minimize costs?
A) Firm 2 should produce all 200 bird feeders.
B) Firm 1 should produce all 200 bird feeders.
C) Firm 1 should produce 150 bird feeders, and Firm 2 should produce 50 bird feeders.
D) Firm 1 should produce 100 bird feeders, and Firm 2 should produce 100 bird feeders.

Question

Use the following to answer questions: Figure: Marginal Costs 1 
-Figure: Marginal Costs 2  This figure shows the production costs of two firms that produce bird feeders. If these two firms represent total production in the industry, how should they allocate the production of 200 bird feeders to minimize costs?
A) Firm 2 should produce all 200 bird feeders. 
B) Firm 1 should produce all 200 bird feeders. 
C) Firm 1 should produce 150 bird feeders, and Firm 2 should produce 50 bird feeders. 
D) Firm 1 should produce 100 bird feeders, and Firm 2 should produce 100 bird feeders.

Quizplus · Accepted Answer

Looking at the marginal cost curves for each firm, we can see that Firm 1 has lower marginal costs up to a production level of about 150 bird feeders, while Firm 2 has lower marginal costs beyond that point. Therefore, to minimize total production costs, Firm 1 should produce the first 150 bird feeders and Firm 2 should produce the remaining 50 bird feeders. This would result in a total cost of $2,700, which is the lowest possible cost for producing 200 bird feeders.

Use the Following to Answer Questions: Figure: Marginal Costs 1