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

question 79

Essay

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?

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Definitions:

Variable Factory Overhead

Refers to the indirect, variable costs that change with the level of production output, such as utilities for the manufacturing plant.

Controllable Variance

The difference between the actual variable overhead costs and the budgeted variable overhead for actual production.

Direct Materials Quantity Variance

The difference between the actual quantity and the standard quantity of direct materials used in producing a product multiplied by the standard direct material price.

Units

A measure of quantity used to express the amount of a product, service, or resource used or produced in a transaction.