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A firm produces its output in two plants, A and B.a. To maximize its profit, the firm should produce the output at which ______ equals ______. It sets the price given by ______.

b. It should allocate this output between the two plants so that ______ equals ______.

c. If marginal cost in plant A is $20 and the marginal cost in plant B is $15, the firm should reduce output in ______ and increase output in ______. As it continues this reallocation ______ will increase and ______ will decrease.

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a. To maximize its profit, the firm should produce the output at which marginal cost equals marginal revenue. It sets the price given by the market demand curve.

To determine the optimal output level, you need to find the point where the marginal cost (MC) curve intersects the marginal revenue (MR) curve. The MC curve represents the additional cost incurred by producing one more unit of output, while the MR curve represents the additional revenue generated by selling one more unit of output. In a perfectly competitive market, profit is maximized when MC equals MR.

To find the intersection point, you can calculate the marginal cost and marginal revenue for different output levels and plot them on a graph. The point where they intersect gives you the optimal output level for profit maximization.

b. The firm should allocate this output between the two plants so that the marginal cost per unit of output is equal in both plants. This ensures that the firm avoids inefficient allocation of resources and minimizes costs.

You can compare the marginal costs of each plant and distribute the production in a way that equalizes the marginal cost per unit between the plants. This can be done by adjusting the production levels in each plant to balance out the marginal costs.

c. If the marginal cost in plant A is $20 and the marginal cost in plant B is $15, the firm should reduce output in plant A and increase output in plant B.

By reducing output in plant A and increasing output in plant B, the firm can take advantage of the lower marginal cost in plant B. This reallocation will lower the overall average cost of producing each unit of output.

As the firm continues this reallocation process, the average cost of production will decrease because more output is being produced in the plant with lower marginal cost. The marginal cost in plant B will increase as production increases, while the marginal cost in plant A will decrease as production decreases.