An oligopoly producing a homogeneous product is comprised of three firms that ac
ID: 1246205 • Letter: A
Question
An oligopoly producing a homogeneous product is comprised of three firms that act like a cartel. Assume that these three firms have identical cost schedules. Assume also that if any one of these firms sets a price for the product, the other two firms charge the same price. As long as they all charge the same price they will share the market equally; and the quantity demanded of each will be the same. Below are the total-cost schedule of one of these firms and the demand schedule that confronts it when the other firms charge the same price as this firm.Output Total Cost
Marginal Cost
Price
Quantity Demanded
Marginal Revenue
0
$ 0
1
180
$180
$ 780
1
$780
2
300
120
720
2
660
3
180
180
660
3
540
4 720 240 600 4 420
5 1020 300 540 5 300
6 1380 360 480 6 180
7
1800
420
420
7
60
8 2280 480 360 8
-60
A) What price would be charged, what output would be produced, and what profit would be made by this firm? Thank You An oligopoly producing a homogeneous product is comprised of three firms that act like a cartel. Assume that these three firms have identical cost schedules. Assume also that if any one of these firms sets a price for the product, the other two firms charge the same price. As long as they all charge the same price they will share the market equally; and the quantity demanded of each will be the same. Below are the total-cost schedule of one of these firms and the demand schedule that confronts it when the other firms charge the same price as this firm.
Output Total Cost
Marginal Cost
Price
Quantity Demanded
Marginal Revenue
0
$ 0
1
180
$180
$ 780
1
$780
2
300
120
720
2
660
3
180
180
660
3
540
4 720 240 600 4 420
5 1020 300 540 5 300
6 1380 360 480 6 180
7
1800
420
420
7
60
8 2280 480 360 8
-60
A) What price would be charged, what output would be produced, and what profit would be made by this firm? Thank You Output Total Cost
Marginal Cost
Price
Quantity Demanded
Marginal Revenue
0
$ 0
1
180
$180
$ 780
1
$780
2
300
120
720
2
660
3
180
180
660
3
540
4 720 240 600 4 420
5 1020 300 540 5 300
6 1380 360 480 6 180
7
1800
420
420
7
60
8 2280 480 360 8
-60
Explanation / Answer
The oligopoly will produce where MC=MR, which is at an output of 5 (MC=300=MR). Five units will be produced, and the price will be at $540. That's only if the other two firms won't change their prices. The profit will then be total revenue minus total cost, which is 5*540 minus 1020, which is 2700 minus 1020 or 1680.