Use the Following to Answer Questions

question 210

Multiple Choice

Use the following to answer questions :
Scenario: Two Identical Firms
Two identical firms make up an industry in which the market demand curve is represented by Q = 5 000 - 4P,where Q is the quantity demanded and P is the price per unit.The marginal cost of producing the good in this industry is constant and equal to $650.Fixed cost is zero.
-(Scenario: Two Identical Firms) Use Scenario: Two Identical Firms.If one firm decides to cheat,the cheating firm will:

• A) be able to increase its profits initially.
• B) find that cheating leads to a decrease in its profits alone.
• C) find that cheating initially leads to an increase in both firms' profits.
• D) find that the other firm has an increase in its profits alone.

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Definitions:

Fixed Component

The portion of a cost or expense that remains constant regardless of changes in the volume of goods or services produced or sold.

Dependent Variable

A variable that responds to some causal factor; total cost is the dependent variable, as represented by the letter Y, in the equation Y = a + bX.

Fixed Cost

Costs that do not change with the level of production or sales, such as rent or salaries.

Total Expense

The sum of all costs and expenses associated with the operations of a business.