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Discuss about the multi-plant monopolist

Discuss about the multi-plant monopolist

Answers

Wilfred
- A monopolist who produces a homogeneous product in different plants
- For simplicity we shall assume two plants.
Assume the monopolist operates two plants A & B with a difference cost structure. He has to make two decisions.
(i) How much output to produce altogether and at what price to sell it so as to maximize profit.
(ii) How to allocate the proportion of the optimal output between the two plants.
The monopolist is assumed to know his market demand and the corresponding MR curve and the cost structure of the different plants.
The total MC curve is a horizontal summation of the MC curve of the individual plants.

MC= MC1+ MC2

The monopolist maximizes his profit by utilizing each plant up to the level at which the marginal cost are equal to each other and to the common Mr. This is *,if the MC of the one plant say plant A is lower than the MC of plant B, the monopolist wound increase his profit by increasing the production in A and decreasing it in B until.

MC = MC2 = MR

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Wilfykil answered the question on March 20, 2019 at 12:05

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