1.8. 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?

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Factory #1: C, (Q) 100 = Factory #2: C(Q) = 200