Suppose that Mystic Energy and E-Storm are the only two producers of hydrogen fuel cells. The market inverse demand curve for hydrogen fuel cells is P = 1,300 - 0.08Q, where Q is the number of fuels cells per month and P is the price per fuel cell. The marginal cost is constant at $500. Acting as a cartel, the owners of Mystic Energy and E-Storm agree to evenly split the market output. In this case, Mystic Energy produces ____.

Question

Quizplus · Accepted Answer

To find the quantity produced by Mystic Energy when acting as a cartel, we first determine the total quantity produced by the cartel to maximize profit. The marginal revenue (MR) is equal to the marginal cost (MC) in a profit-maximizing scenario. The inverse demand curve is P = 1,300 - 0.08Q. To find MR, we need to double the slope of the demand curve (because MR has twice the slope of the demand curve in linear cases), so MR = 1,300 - 0.16Q. Setting MR equal to MC (which is $500) to find the profit-maximizing quantity for the cartel:1,300 - 0.16Q = 500800 = 0.16QQ = 800 / 0.16Q = 5,000Since Mystic Energy and E-Storm agree to evenly split the market output, Mystic Energy produces half of 5,000, which is 2,500 fuel cells per month.

Suppose That Mystic Energy and E-Storm Are the Only Two