Quick Buck and Pushy Sales produce and sell identical products and face zero marginal and average cost. Below is the market demand curve for their product. If Quick Buck and Pushy Sales 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 Quick Buck's economic profit?
A)$1,000
B)$2,000
C)$3,000
D)$4,000

Question

Quick Buck and Pushy Sales produce and sell identical products and face zero marginal and average cost. Below is the market demand curve for their product.  If Quick Buck and Pushy Sales 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 Quick Buck's economic profit?
A)$1,000 
B)$2,000 
C)$3,000 
D)$4,000

Quizplus · Accepted Answer

To find the monopoly price and quantity, we need to find the point on the demand curve where marginal revenue (MR) equals marginal cost (MC), which is zero in this case as there are no marginal costs.

We know that the total quantity demanded (Q) is 300, so half of that is 150. At quantity 150 on the demand curve, the price is $10. Therefore, the monopoly price is $10 and the monopoly quantity is 150.

Quick Buck produces half of the monopoly quantity, which is 75 units. Its revenue is 75 x $10 = $750. Since there are no costs, Quick Buck's economic profit is $750.

Note that Pushy Sales would also have the same economic profit.

Quick Buck and Pushy Sales Produce and Sell Identical Products