Suppose that you own two farms on which to grow corn. Farm 2 has a lower marginal cost of producing corn than Farm 1. To lower total cost of production, you should produce:
A) all on Farm 1.
B) all on Farm 2.
C) some on Farm 1 and some on Farm 2.
D) neither on Farm 1 nor on Farm 2.

Question

Quizplus · Accepted Answer

To minimize the total cost of production, it is advisable to produce on both farms. By doing so, you can take advantage of the lower marginal cost of producing corn on Farm 2. Producing all the corn on Farm 2 will lead to a higher output but may not result in cost minimization. Similarly, producing all corn on Farm 1 will not utilize the lower marginal cost of Farm 2. Hence, a combination of production on both Farms 1 and 2 is the best choice.

Suppose That You Own Two Farms on Which to Grow