Question

Consider the following information for a firm operating in an oligopolistic industry. The initial price of the product is $50, and the initial quantity is 800.

Price p2 D1 550 750 800 850 1000 Quantity

A) If price is $70 per unit, and firms DO NOT collude, what is the quantity that the firm will produce and sell? A) ____________________________________ _

B) If price is $70 per unit, and firms DO NOT collude, what is the firm’s total revenue? B) ____________________________________

C) If the price is $30 per unit, what quantity will this firm will produce and sell? C) ____________________________________

D) If the price is $30 per unit, what is the firm’s total revenue? D) ___________________________________

E) If the price is $70 per unit, and firms collude, what is the quantity that this firm will produce and sell? E) ____________________________________

F) If the price is $70 per unit, and firms collude, what is this firm’s total revenue? F) ____________________________________

Answer 1

A) Firm will produce 550 units because no other firm will increase its price to $70. Price will not be matched to $70. This makes the relevant demand curve D2

B) At P = 70 and Q = 550, Revenue is PQ or 70*550 = 38500

C) Firm will produce and sell 850 units. Relevant demand is D1

D) Total revenue is 30*850 = 25500

E) Under collusion, firms will collectively charge a higher price and produce a lower quantity. Hence the quantity is 750 units when price is $70.

F) It will be 70*750 = $52500