There Are Two Firms in the Blastopheme Industry

question 28

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) they produce a total of 375 units, no matter which firm produces them.
• B) and only if each firm produces 250 units in its plant.
• C) and only if they each produce a total of 562.50 units.
• D) they produce a total of 500 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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Definitions:

Coordinates

A set of numbers that determine the position of a point, line, or area in a space.

Centre of Gravity

A geographical location that minimizes transportation costs for a company, considering the locations of suppliers, manufacturing facilities, and markets.

Fixed Cost

Costs that remain constant regardless of the amount of goods produced or sold, like lease payments, employee wages, and insurance fees.