A monopolist owns two plants in which to produce product A.The marginal cost of producing A is increasing,but currently is lower in plant 1 than in plant 2.How should the monopolist allocate production?

Question

Quizplus · Accepted Answer

The monopolist should produce in plant 1 up to the point where marginal costs are equated across the plants. This is because producing in plant 1 when marginal costs are lower than in plant 2 would result in lower overall costs for the monopolist. However, beyond the point where marginal costs are equated, it would be more costly to produce in plant 1, so the monopolist should switch to producing in plant 2. By reallocating production in this way, the monopolist can minimize costs and maximize profits.

A Monopolist Owns Two Plants in Which to Produce Product