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. Suppose 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. If Mega cheats on the agreement by reducing its price to $1 while Acme continues to comply with the collusive agreement, then Mega's economic profit will be ________.
A)$75
B)$100
C)$150
D)$200

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.  Suppose 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. If Mega cheats on the agreement by reducing its price to $1 while Acme continues to comply with the collusive agreement, then Mega's economic profit will be ________.
A)$75 
B)$100 
C)$150 
D)$200

Quizplus · Accepted Answer

At a price of $1, Mega will sell 150 units, and since average cost is zero, Mega's economic profit will be $150.

Suppose Acme and Mega Produce and Sell Identical Products and Face