It is demonstrated that sometimes extensive diseconomies of scale, say, due to high transportation costs, would require that the firm produce its product in multiple plants. Suppose a beer brewing company has determined that its monthly total production cost is: TC = 100 Q - 1.2 Q2 + 0 .004Q3 where Q is its monthly output measured in kegs.
It is demonstrated that sometimes extensive diseconomies of scale, say, due to high transportation costs, would require that the firm produce its product in multiple plants. Suppose a beer brewing company has determined that its monthly total production cost is: TC = 100 Q - 1.2 Q2 + 0 .004Q3 where Q is its monthly output measured in kegs.
A. The average hauling (freight) cost is $0.8Q; that is: AHC = 0.8Q. Write the firm's average aggregated cost equation.
B. Now suppose the firm is facing the following market demand:
Q = 4,000 - 10 P
Determine the optimal number of plants that the firm should have to take full advantage of the market demand.
C. Calculate the firm's profit.
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