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Multiplant monopoly problem: Assume the firm has two plants with the following marginal cost functions: MC1=...

  1. Multiplant monopoly problem: Assume the firm has two plants with the following marginal cost functions:

MC1= 20 + 2Q1

MC2= 10 + 5Q2

  1. What is the profit maximizing price?  Show your work.

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Answer #1

ANSWER:

Since, marginal cost is constant for a profit maximizing monopoly, MC1 = MC2

MC2=10+5Q2

If Q2 = 4, then MC2= 10 + (5*4) = 30

Putting this value in equation, MC1=20+2Q1

30 = 20 + 2Q1

Q1 = 5

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