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, each firm produces ____.

Question

Quizplus · Accepted Answer

To find the total quantity produced by the cartel, set marginal revenue equal to marginal cost. The marginal revenue curve is derived from the inverse demand curve: MR = 1,300 - 0.16Q. Set MR = MC: 1,300 - 0.16Q = 500. Solving for Q gives Q = 5,000. Since the firms split the output evenly, each firm produces 2,500 units.

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