Suppose the total cost of producing goods Q₁ and Q₂ jointly is given by TC = 100 + 50Q₁Q₂ - (Q₁Q₂)^0.5. The total cost of producing Q₁ and Q₂ in two separate facilities is given by TC = 75 + 3,000Q₁ + 1,000Q₂ + + . If the firm produces Q₁ = 40 and Q₂ = 100, the firm should produce the goods _____ because of _____ of scope.

Question

Quizplus · Accepted Answer

When producing the goods jointly, the total cost is TC = 100 + 50(40)(100) - (40)(100)(0.5) = 4,900. 
When producing the goods in separate facilities, the total cost is TC = 75 + 3,000(40) + 1,000(100) + 11(40)(100) + 11(40)(100) = 7,575. 
Therefore, producing the goods jointly results in a lower total cost, indicating economies of scope.

Suppose the Total Cost of Producing Goods Q1 and Q2

Suppose the Total Cost of Producing Goods Q₁ and Q₂