Asked by Angelina Carbonell on May 02, 2024
Verified
There are two firms in the blastopheme industry.The demand curve for blastophemes is given by p 1,500 2q.Each firm has one manufacturing plant and each firm i has a cost function C(qi) q2i, where qi 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) and only if each firm produces 150 units in its plant.
B) they produce a total of 300 units, no matter which firm produces them.
C) they produce a total of 250 units, no matter which firm produces them.
D) and only if they each produce a total of 375 units.
E) they shut down one of the two plants, having the other operate as a monopoly and splitting the profits.
Cost Function
A mathematical relationship that describes how the total cost of production changes with varying levels of output.
Cartel Arrangement
An agreement between competing firms or countries to control prices, limit supply, or restrain competition in a particular market.
Manufacturing Plant
A facility used for the industrial production of goods, including assembly lines and machinery for manufacturing products.
- Compute the equilibrium quantity for enterprises within a Cournot duopoly context.
- Implement the Cournot model across different market situations and demand functions.
- Determine the circumstances that lead to the maximization of collective profits by firms involved in a cartel agreement.
Verified Answer
1500 - 4q = P1 + 2q
P1 = 1500 - 6q
Substituting this expression for P1 into each firm's cost function and solving for q, we find that each firm will produce 150 units. Therefore, the best choice is A, and only if each firm produces 150 units in its plant.
Learning Objectives
- Compute the equilibrium quantity for enterprises within a Cournot duopoly context.
- Implement the Cournot model across different market situations and demand functions.
- Determine the circumstances that lead to the maximization of collective profits by firms involved in a cartel agreement.
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