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

Producing in plant 1 up to the point where marginal costs are equal across the two plants, would minimize the average cost of production. Moving production from plant 1 to plant 2 would increase the marginal cost of production, thus increasing the average cost of production. Therefore, the best choice is to produce in plant 1 up to the point where marginal costs are equal across the two plants.

A Monopolist Owns Two Plants in Which to Produce Product MC1=MC2M C _ { 1 } = M C _ { 2 }MC1​=MC2​

A Monopolist Owns Two Plants in Which to Produce Product $M C _ { 1 } = M C _ { 2 }$