Question

34. Consider a firm producing and selling joint products produced in variable proportions in two competitive markets. For a given level of TC (or a level TR), the profit-maximizing combination of QA and QB requires _______, where PA = price of A, PB = price of B, CA = cost of A and CB = cost of B. MC of A and B can be used for CA and CB.

A. P_A/C_A =P_B/C_B B. P_A/C_B =P_B/C_A C. P_A/C_A -P_B/C_B =1. D. P_A/C_A +P_B/C_B = 1.0 E. None of the above.

35. Consider a firm producing and selling joint products produced in variable proportions in non-competitive markets. For a given level of TC (or a level TR), the profit-maximizing combination of QA and QB requires _______, where PA = price of A, PB = price of B, CA = cost of A and CB = cost of B. MC of A and B can be used for CA and CB.

A. P_A/C_A =P_B/C_B B. P_A/C_B =P_B/C_A C. P_A/C_A -P_B/C_B =1. D. P_A/C_A +P_B/C_B = 1.0 E. None of the above.

Answer 1

34) Considering that both the markets where the firm sells the joint products as competitive, the firm will maximize its profit by producing the level of output for each product at which their marginal costs of production are equal to their respective prices. Therefore, in this case, the firm will maximize its profit for product A at the point where C(A)=P(A) and similarly, for product B, it would be C(B)=P(B). Hence, the firm will maximize its profit by producing the combination of Q(A) and Q(B) at the point where the ratio of the marginal costs and prices of the respective products are identical or equal.

Therefore, based on the profit-maximizing combination of two products in competitive markets, we can state:-

C(A)/C(B)=P(A)/P(B)

C(A)P(B)=C(B)P(A)

P(B)=C(B)P(A)/C(A)

P(B)/C(B)=P(A)/C(A)

Hence, based on the information and conditions given in the question, the profit-maximizing combination of both products Q(A) and Q(B) requires the fulfillment of the condition: P(B)/C(B)=P(A)/C(A) or option A given in the answer choices or options.

35) Now, if both the markets for product A and B are non-competitive, the firm will ideally maximize its profit for respective products by producing a combination of Q(A) and Q(B) at the point where the ratio of the marginal revenue and marginal cost of both goods or products are equal or identical. However, the question provides information about the respective prices of both products A and B and their marginal costs which have been denoted as C(A) and C(B) and the marginal revenue of the respective products are missing. Under a non-competitive market structure, based on the market power or price-setting power of the firm, it can charge a relatively higher price for the products than their marginal costs and the profit-maximizing amount of both the products would correspond to the level at which the marginal revenue obtained from selling the products are equal to their respective marginal costs. Note that the price charged by the firm for both products is greater or higher than both marginal revenue and the marginal cost of the products. This price-setting power or market power generally enables the non-competitive firms to earn a positive economic profit. Therefore, the answer, in this case, would be option E or None of the above.