Ney Inc. and ARN Parts are the only two producers of bulldozer bucket teeth. The owners of the two firms conspire to charge a monopoly price, with each firm serving half the market. The market inverse demand curve is P = 1,000 - 10Q, where Q measures the daily number of sets of bulldozer bucket teeth and P is the price per set. The marginal cost of production for either firm is constant at $200, and fixed costs are zero. Suppose Ney Inc. cheats on the cartel agreement by producing an additional 10 sets of bucket teeth per day (while ARN Parts adheres to the cartel agreement). In this case, ARN Parts will earn a profit of $_____.

Question

Quizplus · Accepted Answer

When Ney Inc. cheats by producing an additional 10 sets, the total quantity increases, reducing the price. ARN Parts, adhering to the original agreement, will sell fewer units at a lower price, reducing its profit. Calculating the new price and quantity, ARN Parts' profit is $6,000.

Ney Inc and ARN Parts Are the Only Two Producers of of Bulldozer