A firm has two factories for which costs are given by:

The firm faces the following demand curve:
P  700  5Q
where Q is total output €“ i.e., Q  Q1  Q2.
a. On a diagram, draw the marginal cost curves for the two factories, the average and marginal revenue curves, and the total marginal cost curve (i.e., the marginal cost of producing Q  Q1  Q2). Indicate the profit-maximizing output for each factory, total output, and price.
b. Calculate the values of Q1, Q2, Q, and P that maximize profit.
c. Suppose that labor costs increase in Factory 1 but not in Factory 2. How should the firm adjust (i.e., raise, lower, or leave unchanged) the following: Output in Factory 1? Output in Factory 2? Total output? Price?

Transcribed Image Text:

Factory # 1 : Cl (2) = 1 0Qt Factory #2: C2(02-200.