Table 17-4
Only two firms, JKL and XYZ, sell a particular product. The following table shows the demand curve for their product. Each firm has the same constant marginal cost of $8 and zero fixed cost.

$$\begin{array} { | c | c | c | }
\hline \begin{array} { c }
\text { Price } \
\text { (Dollars per unit) }
\end{array} & \begin{array} { c }
\text { Quantity Demanded } \
\text { (Units) }
\end{array} & \begin{array} { c }
\text { Total Revenue } \
\text { (Dollars) }
\end{array} \
\hline 28 & 0 & 0 \
\hline 26 & 5 & 130 \
\hline 24 & 10 & 240 \
\hline 22 & 15 & 330 \
\hline 20 & 20 & 400 \
\hline 18 & 25 & 450 \
\hline 16 & 30 & 480 \
\hline 14 & 35 & 490 \
\hline 12 & 40 & 480 \
\hline 10 & 45 & 450 \
\hline 8 & 50 & 400 \
\hline 6 & 55 & 330 \
\hline 4 & 60 & 240 \
\hline 2 & 65 & 130 \
\hline 0 & 70 & 0 \
\hline
\end{array}$$
-Refer to Table 17-4. JKL and XYZ agree to maximize joint profits. However, while JKL produces the agreed-upon amount, XYZ breaks the agreement and produces 5 more than agreed. How much profit does XYZ make?
A)$100.00
B)$140.00
C)$240.00
D)$120.00

Question

Table 17-4
Only two firms, JKL and XYZ, sell a particular product. The following table shows the demand curve for their product. Each firm has the same constant marginal cost of $8 and zero fixed cost.
​
​
 $$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Price } \
\text { (Dollars per unit) }
\end{array} & \begin{array} { c } 
\text { Quantity Demanded } \
\text { (Units) }
\end{array} & \begin{array} { c } 
\text { Total Revenue } \
\text { (Dollars) }
\end{array} \
\hline 28 & 0 & 0 \
\hline 26 & 5 & 130 \
\hline 24 & 10 & 240 \
\hline 22 & 15 & 330 \
\hline 20 & 20 & 400 \
\hline 18 & 25 & 450 \
\hline 16 & 30 & 480 \
\hline 14 & 35 & 490 \
\hline 12 & 40 & 480 \
\hline 10 & 45 & 450 \
\hline 8 & 50 & 400 \
\hline 6 & 55 & 330 \
\hline 4 & 60 & 240 \
\hline 2 & 65 & 130 \
\hline 0 & 70 & 0 \
\hline
\end{array}$$ ​
-Refer to Table 17-4. JKL and XYZ agree to maximize joint profits. However, while JKL produces the agreed-upon amount, XYZ breaks the agreement and produces 5 more than agreed. How much profit does XYZ make?
A)$100.00
B)$140.00
C)$240.00
D)$120.00

Quizplus · Accepted Answer

To maximize joint profits, JKL and XYZ would choose the quantity where marginal revenue equals marginal cost. The table shows that total revenue is maximized at a price of $16, with a quantity of 30 units and total revenue of $480. If the firms split this quantity evenly, each would produce 15 units. However, XYZ produces 5 more units, making its total production 20 units. At a production level of 35 units (the combined amount of JKL's 15 and XYZ's 20), the price is $14 per unit, leading to a total revenue of $490. Since XYZ produces 20 units, its revenue is $14 * 20 = $280. Subtracting the total cost ($8 * 20 = $160) from the total revenue ($280) gives XYZ a profit of $120. However, this calculation seems to have an error based on the provided choices, indicating a misunderstanding of the question's premise or a miscalculation. Given the choices and the scenario, the correct profit calculation should consider the marginal cost and the additional units produced by XYZ. If XYZ indeed maximizes profit by deviating from the agreement, the correct answer should reflect the profit from selling those additional units at the marginal cost, considering the total revenue and cost for those units. Without specific details on the agreed quantity and the actual calculation steps leading to each choice, there's a discrepancy in the explanation. The correct approach involves identifying the price after XYZ's deviation, calculating XYZ's total revenue for its production level, subtracting the total cost from this revenue to find the profit. Given the misunderstanding in the explanation, reevaluation of the profit calculation based on the correct understanding of the demand curve, price levels, and marginal cost is necessary.

Table 17-4 Only Two Firms, JKL and XYZ, Sell a Particular

Table 17-4
Only Two Firms, JKL and XYZ, Sell a Particular