Quick Buck and Pushy Sales Produce and Sell Identical Products

question 40

Multiple Choice

Quick Buck and Pushy Sales produce and sell identical products and face zero marginal and average cost.Below is the market demand and marginal revenue curves for the product.
Refer to the figure above.Quick Buck and Pushy Sales have agreed to each produce half the profit-maximizing monopolist quantity,set the monopoly price and split the profits evenly.Suppose Quick Buck cheats on Pushy Sales and reduces its price to $1.00 each while Pushy Sales continues to comply with the collusive agreement.What will be the economic profit for Quick Buck?

• A)$6,000
• B)$1,500
• C)$2,000
• D)$3,000

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Definitions:

Absorption Costing

Absorption costing is an accounting method that includes all direct and indirect manufacturing costs in the cost of a product.

Net Operating Income

A financial metric that calculates a company's income after operating expenses are deducted, but before interest and taxes.

Absorption Costing

A method of inventory costing in which all costs of production (both fixed and variable) are treated as product costs.

Gross Margin

Gross margin is the difference between revenue and the cost of goods sold, divided by revenue, expressed as a percentage. It measures how much a company earns taking into consideration the costs that it incurs for producing its products or services.