Question

produces two goods, A and B. If they produce the goods jointly, the total cost is TC = 100 + 50QAQB - VQAQB If they produce the goods separately, the total cost of producing good A is TC = 75 + 3000QA + 1000QB + QA? + QB? If the firm produces at QA = 40 2 and QB = 100 then the firm should produce the goods because of ___ of scope.a. separately; diseconomies b. jointly; diseconomiesc. separately; economies d. jointly; economies

Answer 1

The correct answer is (d) jointly; economies of scope.

Economies of scope refer to the cost savings that a firm can achieve by producing two or more products together, rather than separately. In this case, the total cost of producing both goods A and B jointly is TC = 100 + 50QAQB - VQAQB. On the other hand, the total cost of producing good A separately is TC = 75 + 3000QA + 1000QB + QA? + QB?, which is higher than the joint cost. Therefore, producing goods A and B jointly is more cost-effective, and the firm should produce the goods together. This indicates that there are economies of scope in the production process.