Happy Cleaners is a monopoly and cleans 500 homes a month. If Sparkle Cleaners enters the market and a Chamberlin oligopoly is formed, Sparkle Cleaners will clean ________homes a month in equilibrium.

Question

Quizplus · Accepted Answer

If a Chamberlin oligopoly is formed, Happy Cleaners will no longer be able to act as a monopoly and will have to consider the actions of Sparkle Cleaners. In this case, the market will reach an equilibrium where both firms will have an incentive to produce a certain quantity that maximizes profits.

Assuming that both firms have identical costs, they will split the market in half, each cleaning 250 homes a month. This is because if either firm decides to increase its output, it will lower the price and decrease profits for both firms. Therefore, they will each produce half the original quantity, resulting in a total of 500/2= 250 homes cleaned by Sparkle Cleaners in equilibrium.

Happy Cleaners Is a Monopoly and Cleans 500 Homes a Month