The market for widgets is characterized by many buyers but only two producers, A and B. The market demand for widgets is given by: P = 500 − 10QD where QD = total demand for widgets Both producers face the same production cost, which is $120 in fixed cost and a constant variable cost of $20 per widget. Determine the profit-maximizing levels of output by producers A and B if they both choose the quantity of widgets produced simultaneously. What is the profit for each producer? If both producers collude, what is the equilibrium price and quantity? What is the profit for each producer? (You can assume the firms will share the market equally). Compare your answers to parts (a) and (b). Which outcome (collusive or non-collusive) would the producers prefer? Explain. Which outcome (collusive or non-collusive) is a more stable outcome? Explain. Note: Be sure to show your work.
The market for widgets is characterized by many buyers but only two producers, A and B. The market demand for widgets is given by: P = 500 − 10QD where QD = total demand for widgets Both producers face the same production cost, which is $120 in fixed cost and a constant variable cost of $20 per widget. Determine the profit-maximizing levels of output by producers A and B if they both choose the quantity of widgets produced simultaneously. What is the profit for each producer? If both producers collude, what is the equilibrium price and quantity? What is the profit for each producer? (You can assume the firms will share the market equally). Compare your answers to parts (a) and (b). Which outcome (collusive or non-collusive) would the producers prefer? Explain. Which outcome (collusive or non-collusive) is a more stable outcome? Explain. Note: Be sure to show your work.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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The market for widgets is characterized by many buyers but only two producers, A and B. The market demand for widgets is given by:
P = 500 − 10QD
where QD = total demand for widgets
Both producers face the same production cost, which is $120 in fixed cost and a constant variable cost of $20 per widget.
Determine the profit-maximizing levels of output by producers A and B if they both choose the quantity of widgets produced simultaneously. What is the profit for each producer?
If both producers collude, what is the equilibrium price and quantity? What is the profit for each producer? (You can assume the firms will share the market equally).
Compare your answers to parts (a) and (b). Which outcome (collusive or non-collusive) would the producers prefer? Explain.
Which outcome (collusive or non-collusive) is a more stable outcome?
Explain. Note: Be sure to show your work.
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