In a competitive industry, if the marginal cost of Factory 1 is higher than that of Factory 2, in the short run:
A) both factories are producing too much.
B) either Factory 1 is producing too much or Factory 2 is producing too little or both.
C) either Factory 1 is producing too little or Factory 2 is producing too much or both.
D) both factories are producing too little.

Question

Quizplus · Accepted Answer

If the marginal cost of Factory 1 is higher than that of Factory 2, it means that Factory 1 is less efficient than Factory 2. In a competitive industry, firms aim to minimize their costs to remain competitive and maximize their profits. Therefore, Factory 1 would be producing at a higher cost than Factory 2, making its output less profitable. In the short run, it is easier to adjust the output of Factory 2 than it is for Factory 1. Therefore, either Factory 1 is producing too much or Factory 2 is producing too little or both.

In a Competitive Industry, If the Marginal Cost of Factory