Question

Question 2: Should auto manufacturers produce sedans and SUVs to the margins of sedans and SUVs are equal?

Answer 1

The auto manufacturers are not examples of competitive markets - the firms each producing an identical product. Also as there not a single car producer thus is monopolist also. They sell differentiated product. The demand is relatively elastic as people have different cars to choose from; and demand for their products is affected with the prices of competing auto manufacturers. Auto manufacturers can be considered as oligopoly; because the fixed costs are high; therefore limiting the number of firms who can enter into the market. The rule of the profit maximization rule states to continue the production up to the point where Marginal Cost = Marginal; thus the auto manufacturers should continue the production of sedans and DUVs when the marginal revenue equals the it's cost; and not if the margins of sedans and DUVs are equal