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Figure: Marginal Costs 1
-(Figure: Marginal Costs 1) This figure shows the production costs of two firms that produce steel beams. If these two firms represent total production in the industry, how should they allocate the production of 300 beams to minimize costs?
A) Firm 2 should produce all 300 beams.
B) Firm 1 should produce all 300 beams.
C) Firm 1 should produce 150 beams, and Firm 2 should produce 150 beams.
D) Firm 1 should produce 100 beams, and Firm 2 should produce 200 beams.

Question

Use the following to answer questions:
Figure: Marginal Costs 1 
-(Figure: Marginal Costs 1) This figure shows the production costs of two firms that produce steel beams. If these two firms represent total production in the industry, how should they allocate the production of 300 beams to minimize costs?
A) Firm 2 should produce all 300 beams. 
B) Firm 1 should produce all 300 beams. 
C) Firm 1 should produce 150 beams, and Firm 2 should produce 150 beams. 
D) Firm 1 should produce 100 beams, and Firm 2 should produce 200 beams.

Quizplus · Accepted Answer

To minimize costs, production should be allocated based on the marginal cost of each firm. Typically, the firm with the lower marginal cost should produce more. The allocation of 100 beams to Firm 1 and 200 beams to Firm 2 suggests that Firm 2 has a lower marginal cost for additional units, thus minimizing total production costs.

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