Answer to Question #255658 in Microeconomics for Visha

Question

Amir company for plastic has four different production lines, producing the same product. While checking the firm’s cost data, Ahmed a manager discovers that one of the production lines has a very high average cost than the other lines and suggests closing that production line. Another manager, Rasha, notes that the high cost production line has high fixed costs but its marginal cost is lower than in the other production lines. She says that the high cost production line should not be shut down but should expand its operations. State what is the right decision? Why?

Answer 1

Expanding operations will increase the market base such a way that the production cost is distributed in the other market.