There Are Only Two Firms in an Industry with Demand

question 104

Multiple Choice

There are only two firms in an industry with demand curves q₁ = 30 - P and q₂ = 30 - P.Both have no fixed costs and each has a marginal cost of 10 per unit produced.If they behave as profit-maximizing price takers,each produces 20 units and sells them at a price of 10 so that each firm makes zero economic profits.If they formed a cartel,the profit-maximizing price is

• A) 10.
• B) 15.
• C) 20.
• D) 25.

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Definitions:

Discount Rate

The interest rate that the Federal Reserve charges banks for short-term loans, also used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.

Project Initial Outlay

The initial investment amount required to start a project, typically including costs such as equipment, installation, and initial operating expenses.

Break-Even Quantity

The amount of product that must be sold to cover the costs of production, resulting in neither a profit nor a loss.

Operating Cash Flow

The amount of cash generated by a company's normal business operations, indicating whether a company is able to generate sufficient positive cash flow to maintain and grow its operations.