Suppose a firm has two plants producing the same good.Each plant is producing 200 units of the good.In plant A,the short run average cost of production is $20 and in plant B it is $30.If the firm wants to produce a total of 400 units at the lowest cost in the long run,it should:
A)switch production from plant B to plant A until the average cost of production at each plant is the same.
B)produce only at plant A and shut down plant B.
C)switch production from plant B to plant A until the average cost is the same at the two plants.
D)continue to use the same input ratio.

Question

Quizplus · Accepted Answer

In the long run, to minimize costs, the firm should equalize the marginal costs of production across both plants. Since plant A has a lower average cost, shifting production from plant B to plant A will reduce overall costs until the costs are equalized.

Suppose a Firm Has Two Plants Producing the Same Good