Question

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. Find the economic profit for both firms if they cooperate and charge the same price. Please enter your answers as numerical entries (ie. 1000 or $1000 not "One thousand dollars") Profit for Quick Buck Profit for Pushy Sales Suppose Quick Buck can cheat on Pushy Sales and reduce it's price to $1.00 each while Pushy Sales continues to comply with the collusive agreement and charge $1.50. Find the economic profit for both firms if Quick Buck breaks the agreement and charges a lower price. Profit for Quick Buck Profit for Pushy Sales

Answer 1

Answer:

see explaination

Explanation:

Since marginal cost is zero in this case. Cartel will select the output such that MR=0

We observe that MR=0 at Q=2000 units

Corresponding price for a output of 2000 units is $1.50

So,

Output of each firm=q=Q/2=2000/2=10000

Profit of each firm=P*q-total cost=1.5*1000-0=$1500

So,

Profit for Quick Buch=$1500

Profit for Pushy Sales=$1500

Since Quick buck reduces the price to $1, it will capture the whole quantity demanded

Total quantity demanded at price of $1=3000

Profit for quick buck=P*Q-Total Cost=1*3000-0=$3000

Profit for Pushy Sales=P*Q-Total Cost=1.5*0-0=$0