Consider three firms, A, B and C, all producing kilos of potatoes (per year) in a perfectly competitive market. The diagrams below show marginal cost curves for each of the three firms. FIGURE 12- 1
-Refer to Figure 12- 1. Suppose each of Firms A, B and C are producing 500 kilos of potatoes. Keeping total output unchanged, what level of output should each firm be producing such that the industry is productively efficient?
A) Firm A: 500 kilos, Firm B: 800 kilos, Firm C: 200 kilos
B) Firm A: 200 kilos, Firm B: 500 kilos, Firm C: 800 kilos
C) Firm A: 500 kilos, Firm B: 200 kilos, Firm C: 200 kilos
D) Firm A: 500 kilos, Firm B: 500 kilos, Firm C: 500 kilos
E) Firm A: 700 kilos, Firm B: 800 kilos, Firm C: 0 kilos

Question

Consider three firms, A, B and C, all producing kilos of potatoes (per year) in a perfectly competitive market. The diagrams below show marginal cost curves for each of the three firms.  FIGURE 12- 1
-Refer to Figure 12- 1. Suppose each of Firms A, B and C are producing 500 kilos of potatoes. Keeping total output unchanged, what level of output should each firm be producing such that the industry is productively efficient?
A) Firm A: 500 kilos, Firm B: 800 kilos, Firm C: 200 kilos 
B) Firm A: 200 kilos, Firm B: 500 kilos, Firm C: 800 kilos 
C) Firm A: 500 kilos, Firm B: 200 kilos, Firm C: 200 kilos 
D) Firm A: 500 kilos, Firm B: 500 kilos, Firm C: 500 kilos 
E) Firm A: 700 kilos, Firm B: 800 kilos, Firm C: 0 kilos

Quizplus · Accepted Answer

The correct answer is A because it is the only option that results in the same total output (1500 kilos) while minimizing the total cost of production.

Consider Three Firms, A, B and C, All Producing Kilos