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

question 44

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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Definitions:

Variance

A measure of the dispersion of a set of values, calculated as the average of the squared deviations from the mean.

Observations

The instances or data points collected or recorded for the purpose of analysis.

Coefficient of Variation

A standardized measure of the dispersion of a probability distribution or frequency distribution.

Weights

Quantitative values assigned to elements of a set as a measure of their importance or influence in statistical calculations.