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Question
The market demand in a duopoly market is p= 30 -1.5 q. If the firms collude to form a cartel, how much would each firm supply? Assume that the cost of production is negligible for both firms.
The market demand in a duopoly market is p= 30 -1.5 q. If the firms collude to form a cartel, how much would each firm supply? Assume that the cost of production is negligible for both firms.
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Solution
The correct option is D 5 units
p= 30- 1.5 q
When the p=0, q=20. Hence, maximum market demand = 20.
When the firms collude, they act as a monopoly.
When the costs are zero, profit is maximized when the quantity supplied is half of the maximum market demand i.e. 10.
Hence, each firm would supply 5 units.
5 units
p= 30- 1.5 q
When the p=0, q=20. Hence, maximum market demand = 20.
When the firms collude, they act as a monopoly.
When the costs are zero, profit is maximized when the quantity supplied is half of the maximum market demand i.e. 10.
Hence, each firm would supply 5 units.
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