Straightforward Simple Calculus Problem

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Reference no: EM132385633

Straightforward Simple Calculus Problem

Assume there are two plants

Average production cost given by

AC_j = a + B_iq_j, j = {1, 2}, B₁ > B₂ > 0.

Pant 2 is more efficient (Low Cost)

Total cost - TCj = ACj x qj =

Aqj + Biqj

1) What is the optimal qty produced by E_A plant.

Total output Q = q₁ + q₂; q_j is produced in plant j, for example

Both produced the same 600 JS at one price "P"

π₁ = Pq₁ - TC₁, π₂ = Pq₂ - TC₂

whose q₁, q₂ to maximize profit π₁ + π₂ s.t. q = q₁ + q₂

Both quantities will be positive.

Why is it possible? Shouldn't all output be made in the most efficient plant?

Note - Please outline all steps clearly.

Reference no: EM132385633

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