Describe the circumstances under which a producer of joint products in

Describe the circumstances under which a producer of joint products in fixed proportions might not sell all of one of the available joint products at the profit-maximizing level of operations.

What will be an ideal response?

ANSWER

At the profit-maximizing level of output, the demand for that joint product would be such that the price at which it could be sold would involve negative marginal revenue and, hence, a reduction in total profits. Thus sales would be limited to an amount where the last unit sold brings in zero marginal revenue and the remaining units would not be sold (they could be held for sale at a later date if the price might be expected to increase and if the costs of holding the unsold product were less the present value of the expected revenue; otherwise the unsold product would be destroyed).