We’ve seen already from this chapter that dividing up output over multiple producers—

even when one has higher costs than the other—

can lead to lower industry costs, so long as output is divided up such that MC1 5 MC2 5 MCN.

You’ve already done some practice in Facts and Tools question 3 above with cost functions presented as tables. Let’s try to see how this works graphically.

Take a look at the two marginal cost functions below. pg58

Based on the graphs of these two marginal cost functions, fill in the table below, for industry-wide marginal cost, assuming that production is divided up among the two firms according to Invisible Hand Principle

Transcribed Image Text:

5/9 $18 MC of Firm 1 MC2 14 10 6 1 2 5/9 MC of Firm 2 $15 13 11 9 1 MC 9 2 9