Suppose that Firm A and Firm B are two of the largest producers of a special pool-cleaning robot. Suppose that the marginal cost of making such a robot is constant at $1,000 per unit and there is no start-up cost. The demand for the robot is described by the following schedule.
a. If the market for the robots was perfectly competitive, what would the price and quantity be?
b. If there were only one supplier of robots, what would the price and quantity be?
c. If two firms formed a cartel, what would be the price and quantity? If two firms split the market evenly, what would be Firm A’s production and profit?
d. What would happen to Firm A’s profit if it increased its production by 1,000 while Firm B stuck to the cartel agreement?

Question

Suppose that Firm A and Firm B are two of the largest producers of a special pool-cleaning robot. Suppose that the marginal cost of making such a robot is constant at $1,000 per unit and there is no start-up cost. The demand for the robot is described by the following schedule.
a.  If the market for the robots was perfectly competitive, what would the price and quantity be?
b.  If there were only one supplier of robots, what would the price and quantity be?
c.  If two firms formed a cartel, what would be the price and quantity? If two firms split the market evenly, what would be Firm A’s production and profit?
d.  What would happen to Firm A’s profit if it increased its production by 1,000 while Firm B stuck to the cartel agreement?

Quizplus · Accepted Answer

The Answer of Suppose that Firm A and Firm B are two of the largest producers of a special pool-cleaning robot. Suppose that the marginal cost of making such a robot is constant at $1,000 per unit and there is no start-up cost. The demand for the robot is described by the following schedule.
a.  If the market for the robots was perfectly competitive, what would the price and quantity be?
b.  If there were only one supplier of robots, what would the price and quantity be?
c.  If two firms formed a cartel, what would be the price and quantity? If two firms split the market evenly, what would be Firm A’s production and profit?
d.  What would happen to Firm A’s profit if it increased its production by 1,000 while Firm B stuck to the cartel agreement?

Suppose That Firm a and Firm B Are Two of the Largest