Two firms have no fixed costs and the marginal costs given in the table above. The cheapest way to make 11 tons of steel is for Firm A to produce ______ and firm B to produce ____. The total costs (total costs for Firm A plus total costs for Firm B) are _______. The firms would produce this amount if the price was _______.
Q Firm A's MC Firm B's MC
1 $10 $10
2 $20 $10
3 $30 $10
4 $40 $10
5 $50 $20
6 $60 $30
7 $70 $40
8 $80 $50
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If these two firms are somehow making steel without any equipment and therefore have no fixed costs, the cheapest way to make 11 tons of steel would be for Firm A to make 4 tons and Firm B to make 7 tons. We can find this by adding up the marginal costs and seeing which is lowest. When Firm B makes 7 tons, its total costs are 130. When Firm A makes 4 tons, its total costs are 100, making a total of $230 in total costs. This is $10 cheaper than the next best alternatives.
Firms will produce when the marginal revenue is at least equal to the marginal costs. That means that the firms will have to receive at least as much as it cost them to make the steel. That means that Firm A will need to get at least $25 per ton ($100 total) and Firm B will have to get at least $130 for the 7 tons that they produce (about $18.50 per ton). Firm B will not need to get as high a price as Firm A because its costs per ton are lower than Firm A’s.
Thanks, but how would the last question be answered?
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