Suppose There Are Only Two Firms in an Industry,and Their

question 256

Multiple Choice

Suppose there are only two firms in an industry,and their products are perfect substitutes for each other.Each firm had a fixed marginal cost of $5,and zero fixed cost of operation.The highest the consumers of this product are willing to pay for it is $10,and there are 200 consumers in this market.The two firms agree to collude and come up with a pricing scheme that maximizes their joint profit.The agreed-on price of this collusion will be ________,and this collusion is ________.

• A) $10; unstable
• B) $10; stable
• C) $5; unstable
• D) $9.99; stable

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Definitions:

HOMO

Highest Occupied Molecular Orbital, the topmost energy level occupied by electrons in a molecule under normal conditions.

Allyl Anion

A negatively charged allyl group (a three-carbon chain with a double bond) that acts as a nucleophile in organic reactions.

LUMO

Lowest Unoccupied Molecular Orbital, which is the lowest energy molecular orbital that is currently unoccupied by electrons and can accept an electron.

Pentadienyl Anion

A negatively charged ion formed by removing a proton from a pentadiene, featuring five carbon atoms connected with alternating single and double bonds.