You manage two chocolate factories. Using only these two factories, you must produce exactly 420 kgs of chocolate daily at lowest possible cost. Mathematically, you have: Q1 = Quantity produced at Chocolate Factory #1 Q2 = Quantity produced at Chocolate Factory #2 Daily total overall production: Q1 – Q2 = 420 At present, each factory produces half the overall requirement. This means that Q1 = 210, Q2 = 210 a) When the factores produce the same quantity of chocolate (210 kgs each), what the marginal cost of production in Factory 1? MC1(210) = $______
You manage two chocolate factories. Using only these two factories, you must produce exactly 420 kgs of chocolate daily at lowest possible cost. Mathematically, you have:
Q1 = Quantity produced at Chocolate Factory #1
Q2 = Quantity produced at Chocolate Factory #2
Daily total overall production:
Q1 – Q2 = 420
At present, each factory produces half the overall requirement. This means that
Q1 = 210, Q2 = 210
a) When the factores produce the same quantity of chocolate (210 kgs each), what the marginal cost of production in Factory 1?
MC1(210) = $______
b) And what is the maginal cost of production in Factory # 2
MC2(210) = $______
c) Looking at the cost numbers above, you decide that you can continue to produce 420 kgs of chocolate daily but at overall lower cost. Specifically, you reckon that you can lower costs if you move production of 1 kilogram from one factory to the other factory. This would mean that one factory produces 209 kgs and the other factory produces 211 kgs. You would still produce 420 kgs daily but at overall lower cost.
By this logic, which factory should increase production?
- Factory #2
- Factory #1
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