There Are Two Firms in the Blastopheme Industry

question 2

Multiple Choice

There are two firms in the blastopheme industry. The demand curve for blastophemes is given by p = 4,500 - 4q. Each firm has one manufacturing plant and each firm i has a cost function C(q_i) = q²_i, where q_i is the output of firm i. The two firms form a cartel and arrange to split total industry profits equally. Under this cartel arrangement, they will maximize joint profits if

• A) and only if each firm produces 250 units in its plant.
• B) they produce a total of 500 units, no matter which firm produces them.
• C) and only if they each produce a total of 562.50 units.
• D) they produce a total of 375 units, no matter which firm produces them.
• E) they shut down one of the two plants, having the other operate as a monopoly and splitting the profits.

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