Suppose Acme and Mega Produce and Sell Identical Product with Zero

question 113

Multiple Choice

Suppose Acme and Mega produce and sell identical product with zero marginal and average cost.Following is the market demand and marginal revenue curves for the product.
Refer to the figure above.Suppose Mega and Acme have colluded to work as a pure monopolist,but Mega cheats on Acme and reduces its price to $1.00 each.If Acme matches the price cut and customers are evenly split between the two firms,what will Acme's economic profit be?

• A)$75
• B)$100
• C)$150
• D)$200

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Definitions:

Penetration Rate

The percentage of a target market that consumes a product or service, indicating the level of acceptance and market saturation.

Price Wars

A competitive situation where retailers or manufacturers continuously lower prices to undercut competitors, often resulting in decreased profit margins.

Consolidation

The process of combining multiple accounts or businesses into a single aggregation for reporting and analysis purposes, or the decrease in a stock's price volatility and the formation of a clear resistance or support level after a significant price movement.

Cyclical Industries

Industries whose performance is heavily influenced by the economic cycle, experiencing higher sales during economic booms and lower sales during recessions.