Assume there are only two producers of tennis rackets: Wilson and Prince. The ma
ID: 1166755 • Letter: A
Question
Assume there are only two producers of tennis rackets: Wilson and Prince. The market demand for tennis rackets is depicted by the algebraic formula P - 100 - Q, where P stands for price and Q stands for quantity of rackets. If the market were monopolized, the resulting formula for the monopolist's marginal revenue would be MR- 100 - 2Q, where MR stands for marginal revenue. Assume that both producers face a constant marginal cost of $40 and that there are no fixed costs IfWilson and Prince form a cartel and each agrees to produce one half of the monopolist's profit-maximizing output, how many rackets would each manufacturer produce? 5.1. 15 Please enter a whole number, with no decimal pointExplanation / Answer
5.1)
P = 100 – Q
MR = 100 – 2Q
MC = 40
Cartel Equilibrium; MR = MC
100 – 2Q = 40
2Q = 60
Q = 60/2
= 30
Each firm produces = 15 Units
5.2)
Total output is given as 30 units and substituting it in demand function:
P = 100 – Q
= 100 – 30
= 70
Price is = $ 70
5.3)
Total profit = TR- TC
= 30 *70 – 30*40
= 2100 – 1200
= $ 900
Total profit = $ 900
Each firm profit = $ 450