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Scenario: Two Identical Firms
Two identical firms make up an industry in which the market demand curve is represented by Q = 5,000 - 4P, where Q is the quantity demanded and P is price per unit. The marginal cost of producing the good in this industry is constant and equal to $650. Fixed cost is zero.
-(Scenario: Two Identical Firms) Suppose the two firms in the scenario Two Identical Firms decide to cooperate and collude, resulting in the same amount of production for each firm. What is the profit-maximizing price and output for the industry?

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When firms collude, they act as a monopoly. The marginal revenue (MR) is derived from the demand curve, and setting MR equal to marginal cost (MC) gives the profit-maximizing output. Solving for MR = MC = $650, the output is Q = 1,200 and the corresponding price from the demand curve is P = $950.

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