Consider two firms, A and B, that are producing the same product but with different marginal costs. In this case,
A) neither firm is producing its output at the lowest attainable cost.
B) each firm is being wasteful.
C) a reallocation of output between the firms can lower the industry's total cost.
D) one firm is not maximizing profits.
E) some resources must be unemployed.

Question

Quizplus · Accepted Answer

When one firm has a lower marginal cost than the other, it is more efficient and can produce at a lower cost. In this case, reallocating some of the production from the higher cost firm to the lower cost firm can lower the industry's total cost. This is because the lower cost firm can produce the same output at a lower cost, leading to cost savings for the industry. Therefore, choice C is the best answer.

Consider Two Firms, a and B, That Are Producing the Same