Suppose Acme and Mega produce and sell identical products and face zero marginal and average cost. Below is the market demand curve for their product. If Acme and Mega decide to collude and work together as a monopolist with each firm producing half the quantity demanded by the market at the monopoly price, then what will be Mega's economic profit?
A)$0
B)$50
C)$100
D)$150

Question

Suppose Acme and Mega produce and sell identical products and face zero marginal and average cost. Below is the market demand curve for their product.  If Acme and Mega decide to collude and work together as a monopolist with each firm producing half the quantity demanded by the market at the monopoly price, then what will be Mega's economic profit?
A)$0 
B)$50 
C)$100 
D)$150

Quizplus · Accepted Answer

Each firm will sell 50 units for $2 each. Since average cost is zero, each firm's economic profit is $100.

Suppose Acme and Mega Produce and Sell Identical Products and Face