Consider an industry with two firms producing similar products. Each firm's total cost (in dollars)is given below. Mega Corp: TC = 5,000 + 100Q
Big Inc: TC = 4,000 + 200Q
If each firm is producing 15 units, you would expect:
A)both firms to continue to produce 15 units.
B)Big Inc to charge a lower price than Mega Corp.
C)Mega Corp to charge a lower price than Big Inc.
D)both Mega Corp and Big Inc to reduce output and charge higher prices.

Question

Quizplus · Accepted Answer

At output levels greater than 10 units, average total cost is lower for Mega Corp than for Big Inc, allowing it to charge a lower price.

Consider an Industry with Two Firms Producing Similar Products