Assume two production plants are jointly managed. The decision to jointly manage may arise from at least the following two scenarios: First, a monopoly might own two different kinds of plants, such as electric generating stations. One is old and operates with high cost; the other is new and operates at low cost. The model developed here can tell the monopolist how to divide output between the plants, assuming that both facilities can produce the desired output. On the darker side, we may imagine this setting arises as the result of two former competitors deciding to collude and treat their market as though they were a monopoly. The model can tell them how to allocate production to maximize their joint profits.
KeywordsMaximum Profit Input Quantity Marginal Revenue Bonus Payment Relocation Cost
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