An Industry Has Two Colluding Firms That Act So as to Maximize

question 27

Multiple Choice

An industry has two colluding firms that act so as to maximize total profit in the industry and then split the profits equally. Firm 1 has cost function c(y) = 8y. Firm 2 has cost function c(y) = y². Each firm produces an integer number of units. Market demand is given by Y(p) = 72 - p.

• A) Each firm should produce 16 units.
• B) Firm 1 should produce 32 units and firm 2 should produce 2 units.
• C) Firm 1 should produce 14 units and firm 2 should produce 14 units.
• D) Firm 1 should produce 28 units and firm 2 should produce 4 units.
• E) None of the above.

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