An oligopoly producing a homogeneous product is comprised of three firms that ac
ID: 1246216 • 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
B) If the firms collude to maximize joint profits, what would be the industry price, output, and profit? 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
B) If the firms collude to maximize joint profits, what would be the industry price, output, and profit? 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
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
When the three firms collude, they act as a monopoly. Thus, they will have an output of 5 (where MC=MR=300) and the price they will charge for sure is 540. In the other part of the question, if another firm decides to charge lower (and thus steals more business from the other two firms), then other firms must likewise lower their price and thus they may charge lower than 540. But as a monopoly, the three firms will charge as a monopoly at $540. Thus, the profit is total revenue minus total cost, which is 2700 minus 1020, or 1680.