The table shows the demand curve for monster trucks. There are two monster truck producers. For simplicity, assume that the cost of producing a monster truck is zero. ( AC=0
, FC=0) Q demanded Price
1
$18
2
$16
3
$14
4
$12
5
$10
6
$9
7
$7
8
$6
9
$5
Assume the two producers initially collude to maximize profits, splitting production and profits evenly.
What price will they charge?
$
What is the total quantity produced?
monster trucks
What are the profits for each firm?
$
If one of the producers produces an extra unit to get higher profits, what is the new market price?
$
What are the profits for this firm when it breaks the agreement?
$
What are the other firm’s profits after the agreement is broken?
$
Answer:
What price will they charge:
$9
What is the total quantity produced?
$6
What are the profits for each firm?
$27
If one of the producers produces an extra unit to get higher profits, what is the new market price?
$7
What are the profits for this firm when it breaks the agreement?
$28
What are the other firm’s profits after the agreement is broken?
$21