In this section we shall examine the case of a monopolist who produces a homogeneous product in different plants.

We shall restrict the analysis to two plants for simplicity. However, the analysis may easily be generalized to any number of plants.

Assume that the monopolist operates two plants, A and B, each with a different cost structure (Figures 6.16 and 6.17).

He has to make two decisions:

Firstly, how much output to produce altogether and at what price to sell it so as to maximize profit.

Secondly, how to allocate the production of the optimal (profit-maximizing) output between the two plants.

The monopolist is assumed to know his market demand (and the corresponding MR curve) and the cost structure of the different plants. The total MC curve of the monopolist may be computed from the horizontal summation of the MC curves of the individual plants

MC = MC1 + MC2

Given the MR and MC curves, the monopolist can define the total output and the price at which it must be sold in order to maximize his profit from the intersection of these two curves (point ɛ in figure 6.18).

The allocation of production between the plants is decided by the marginalistic rule

MC1 = MC2 = MR