Next,observe the relationship between MC and MR for multiplant monopolies MR =MCT=MC]=MC2 We know that at Q=30,MR=700-(10)(30)=400. Therefore MC1=400=20Q1.or Q:=20 and MC=400=40Q.orQ2=10. To find the monopoly price.Psubstitute for Qin the demand equation PM=700.(530,or PM=550. c.Suppose labor costs increase in Factory 1 but not in Factory 2.How should the firm adjust the following(ie.,raise,lower,or leave unchanged):Output in Factory 1?Output in Factory 2?Total output?Price? An increase in labor costs will lead to a horizontal shift to the left in MC causing MCr to shift to the left as well (since it is the horizontal sum of MC and MC).The new MCr curve intersects the MR curve at a lower quantity and higher marginal re At a higher level of marginal revenue,Q2 is greate than at the original level for MR.Since Qr falls and Q rises,Q must fall.Since Qr falls,price must rise. 9.A drug company has a monopoly on a new patented medicine.The product an be made in either of two plants.The c s of production for the two plants are MC,=20+2Qn and MC,=10+5 The firm's estimate of the demand for the product is P=20-3(Q+Q).How much should the firm plan to produce in each plant?At what price should it plan to sell the product? First,notice that only MC is relevant because the marginal cost curve of the first plant lies above the demand curve.Next, observe the relationship between MC and MR for multiplant monopolies: MR = MCT = MC1 = MC2 . We know that at Q = 30, MR = 700 - (10)(30) = 400. Therefore, MC1 = 400 = 20Q1 , or Q1 = 20 and MC2 = 400 = 40Q2 , or Q2 = 10. To find the monopoly price, PM, substitute for Q in the demand equation: PM = 700 - (5)(30), or PM = 550. c. Suppose labor costs increase in Factory 1 but not in Factory 2. How should the firm adjust the following(i.e., raise, lower, or leave unchanged): Output in Factory 1? Output in Factory 2? Total output? Price? An increase in labor costs will lead to a horizontal shift to the left in MC1 , causing MCT to shift to the left as well (since it is the horizontal sum of MC1 and MC2 ). The new MCT curve intersects the MR curve at a lower quantity and higher marginal revenue. At a higher level of marginal revenue, Q2 is greater than at the original level for MR. Since QT falls and Q2 rises, Q1 must fall. Since QT falls, price must rise. 9. A drug company has a monopoly on a new patented medicine. The product can be made in either of two plants. The costs of production for the two plants are MC1 = 20 + 2Q1 , and MC2 = 10 + 5Q2 . The firm’s estimate of the demand for the product is P = 20 - 3(Q1 + Q2 ). How much should the firm plan to produce in each plant? At what price should it plan to sell the product? First, notice that only MC2 is relevant because the marginal cost curve of the first plant lies above the demand curve