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. The profit for ARN Parts is $_____.

Question

Quizplus · Accepted Answer

To find the profit for ARN Parts, we first determine the monopoly quantity and price, then calculate ARN's profit. The inverse demand curve is P = 1,000 - 10Q. To maximize profit, set marginal revenue (MR) equal to marginal cost (MC). The total revenue (TR) is P*Q = (1,000 - 10Q)Q. Differentiating TR with respect to Q gives MR = 1,000 - 20Q. Setting MR equal to MC ($200) gives 1,000 - 20Q = 200, solving for Q gives Q = 40 (total market quantity). Since the firms split the market equally, each produces 20 units. The monopoly price is P = 1,000 - 10*40 = 600. ARN's profit is (P - MC) * quantity = (600 - 200) * 20 = 8,000.

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