Purchase Solution

What are the price and output if the oligopolistic firms set the price equal to the marginal cost?

Not what you're looking for?

Ask Custom Question

The can industry is composed of two firms. Suppose that the demand curve for cans is
P=100-Q
Where P is the price (in cents) of a can and Q is the quantity demanded (in millions per month) of cans. Suppose that the total cost function of each firm is
TC=2+15q
Where TC is the total cost (in tens of thousands of dollars) per month and q is the quantity demanded (in millions) per month by the firm.
a.What are the price and output if the firms set the price equal to the marginal cost?
b.What are the profit maximizing price and output if the firms collude and act like a monopolist?
c.Do the firms make a higher combined profit if they collude than if they set price equal t marginal cost? If so, how much higher is their combined profit?

Purchase this Solution
Solution Summary

Solution describes the steps for determining output of oligipoly firms if they set price equal to marginal cost. It also calculates the changes in profits if firms collude and act as a monopolist.

Solution Preview

Solution:

a. What are the price and output if the firm set price equal to marginal cost?
TC = 2+15q
Marginal Cost = MC=d(TC)/dq=15
Marginal cost per piece=15*10000/1000000=15 cents
It is given that price = MC=15
Both firms have equal total cost function, So, Both will have equal marginal cost, i.e. same price in the given situation.
Let us calculate total demand, at P=15
P=100- Q
15=100-Q
Q=85

Total ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
Recent Feedback
  • "Thank you"
  • "Really great step by step solution"
  • "I had tried another service before Brain Mass and they pale in comparison. This was perfect."
  • "Thanks Again! This is totally a great service!"
  • "Thank you so much for your help!"
Purchase this Solution
Free BrainMass Quizzes
Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

View More Free Quizzes
Related BrainMass Solutions

  • Cournot and Bertrand Equilibrium

    Since the Bertrand model assumes that firms compete on price and not output quantity, it predicts that a duopoly is enough to push prices down to marginal cost level. For Bertrand competition, equilibrium prices are equal to Marginal Costs.

  • Oligopolies and Economics

    To maximize profits the combined output is chosen where the marginal revenue curve equals the combined marginal cost : marginal cost Question 12 Under dominant firm price leadership the follower firms will set their own prices rather than

  • four market types

    Similar like the monopolistic firms oligopolistic firms are also a price searcher and hence the price for there product is totally dependent on them.

  • perfectly competitive market, monopolistic market, monopolistic competitive market and an oligopolistic market

    If the output is lower than this figure then the firm can increase output at a cost that is lower than the revenue that the new unit generates (the marginal cost curve is below the marginal revenue curve), and at any point beyond this the marginal revenue

  • Kinked Demand Curve / Oligopolistic market

    Determine the profit maximizing level of output. B. Compute the profit maximizing price. C. Calculate the upper and lower limits within which marginal cost may vary without affecting the profit maximizing output or the price.

  • perfect competition and monopolistic competition

    85782 Economics and management 13. If an oligopolistic firm decides to raise its price. A. other firms will automatically follow B. none of the other firms will follow c.

  • Managerial Economics

    What are the price and output if the firms set price equal to marginal cost? b. What are the profit-maximizing price and output if the firms collude and act like a monopolist? c.

  • Monopolies, Oligopolies and Market Structure

    A profit-maximizing monopolist produces an output level at which a. marginal revenue is the greatest distance from marginal cost b. price is less than marginal cost c. the value to society of the last unit produced equals marginal

  • Productive efficiency

    If the firms in this industry were to compete, what would be the resulting market price and quantity? Use dashed lines as a hint. Label Price as P1 and Quantity as Q1. b.

View More Related Solutions