Question

Use the table below to answer question. The table shows the demand schedule for tickets to watch amateur baseball games in a medium-sized town. The city provides the ballparks, and the players play for free, so the marginal cost of providing the games is zero. The city has authorized two companies to provide baseball games in two stadiums, and the public considers the games in each stadium to be equivalent. Price Quantity $12 0 11 200 30 400 9 600 800 7 1,000 6 1.200 5 1.400 4 1,600 3 1,800 2 2,000 . 2,200 O 2.400 If the duopolists in this baseball market collude and successfully form a cartel, how much profit will each earn? a. $3,200 O b. $3,500 O c. $2.700 O d. $7,200 e. $3,600 Hide Feedback Incorrect

Answer 1

e. $3,600

(Profit is maximized where MR just exceeds or equals MC.
At P = 5; TR = P*Q = 5*1400 = 7000
At P = 6; TR = P*Q = 6*1200 = 7200; MR = Change in TR/Change in Q = (7200-7000)/(1400-1200) = 200/200 = 1
At P = 7; TR = P*Q = 7*1000 = 7000; MR = Change in TR/Change in Q = (7000-7200)/(1200-1000) = -200/200 = -1
So, it will produce at P = 6 and Q = 1200
Each firm will produce 1200/2 = 600 units
Profit = TR - TC = P*Q - 0 = 6*600 = $3600)