Scenario 12.3:
Suppose a stream is discovered whose water has remarkable healing powers. You decide to bottle the liquid and sell it. The market demand curve is linear and is given as follows:
P = 30 - Q
The marginal cost to produce this new drink is $3.
-Refer to Scenario 12.3. What will be the price of this new drink in the long run if the firms in the industry collude with one another to maximize joint profit?

Question

Quizplus · Accepted Answer

In the long run, if firms collude to maximize joint profit, they will produce at the quantity where marginal cost equals marginal revenue. The marginal revenue curve is the derivative of the demand curve, which is MR = 30 - 2Q. Setting MR = MC, we get 30 - 2Q = 3, which implies Q = 13.5. Plugging this back into the demand curve, we get P = 30 - 13.5 = $16.50.

Scenario 12.3: Suppose a Stream Is Discovered Whose Water Has Remarkable Healing