There Are Only Two Firms in an Industry with Demand

question 77

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 and split the production of the output evenly,the economic profit of each firm would be

• A) 0.
• B) 50.
• C) 100.
• D) 200.

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Definitions:

Price Ceilings

a government-imposed limit on how high a price can be charged for a product, service, or commodity.

Black Markets

Unauthorized or illegal trading of goods and services that violate government regulations.

Suppliers

Businesses or individuals that provide goods or services to another entity in a supply chain.

Good Policy

A set of principles or guidelines designed to achieve rational outcomes, often considered to be beneficial for the majority.