Two firms in a particular industry face a market demand curve given by the equation P = 100−(1/3)Q. The marginal cost is $40 per unit and the marginal revenue is MR = 100− (2/3)Q. (a) Draw the demand curve to scale on a diagram, and then insert the corresponding marginal revenue curve and the MC curve. (b) If these firms got together to form a cartel, what output would they produce and what price would they charge? (c) Assuming they each produce half of the total what is their individual profit?
Two firms in a particular industry face a market demand curve given by the equation P = 100−(1/3)Q. The marginal cost is $40 per unit and the marginal revenue is MR = 100− (2/3)Q. (a) Draw the demand curve to scale on a diagram, and then insert the corresponding marginal revenue curve and the MC curve. (b) If these firms got together to form a cartel, what output would they produce and what price would they charge? (c) Assuming they each produce half of the total what is their individual profit?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Two firms in a particular industry face a market demand curve given by the equation P = 100−(1/3)Q. The marginal cost is $40 per unit and the marginal revenue is MR = 100− (2/3)Q.
(a) Draw the demand curve to scale on a diagram, and then insert the corresponding marginal revenue curve and the MC curve.
(b) If these firms got together to form a cartel, what output would they produce and what price would they charge?
(c) Assuming they each produce half of the total what is their individual profit?
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