Consider two farms. Farm 1 produces the first bushel for $5 each, but the marginal cost rises gradually as the quantity increases. Farm 2 produces the first bushel for $7, but marginal cost also rises gradually as the quantity increases. With a market price of $10 a bushel, how should production be allocated between these two farms?
A) Produce on both farms until the marginal cost on each farm rises to $7.
B) Produce on both farms until the marginal cost on each farm rises to $10.
C) Produce all bushels on Farm 1.
D) Produce all bushels on Farm 2.

Question

Quizplus · Accepted Answer

Production should continue on both farms until the marginal cost equals the market price of $10, maximizing profit.

Consider Two Farms