Suppose the market demand curve is P = 40 - 2Q and the constant marginal cost of production is MC = 20. Which of the following is a valid expression for the collusion curve? A) Q = 5 B) Q₁ = 5 - Q₂ C) Q₁ = Q₂ = 5 D) Q₁ = 40 - Q₂

Question

Quizplus · Accepted Answer

The collusion curve represents the total quantity supplied by firms in a market when they collude to act like a monopoly. To find this quantity, we set the market demand equal to the marginal cost (MC) and solve for Q. Given P = 40 - 2Q and MC = 20, setting P = MC gives 20 = 40 - 2Q, which simplifies to 2Q = 20, and thus Q = 10 for the total market. However, the collusion curve itself is not directly represented by this calculation. The correct answer, A) Q = 5, is incorrect in the context of explaining the collusion curve based on the provided information. My explanation mistakenly interpreted the question as asking for the total quantity supplied under collusion, which would be Q = 10 for the market as a whole, not per firm or as a "collusion curve." The correct approach should involve determining how the total quantity is divided among colluding firms or how it affects the market, none of which is accurately reflected in the given options.

Suppose the Market Demand Curve Is P = 40 -