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. Suppose 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. If Quick Buck cheats by reducing its price to $1 while Pushy Sales continues to comply with the collusive agreement, then Quick Buck will sell ______ units and Pushy Sales will sell ______ units.
A)0; 3,000
B)3,000; 1,000
C)2,000; 1,000
D)3,000; 0

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.  Suppose 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. If Quick Buck cheats by reducing its price to $1 while Pushy Sales continues to comply with the collusive agreement, then Quick Buck will sell ______ units and Pushy Sales will sell ______ units.
A)0; 3,000 
B)3,000; 1,000 
C)2,000; 1,000 
D)3,000; 0

Quizplus · Accepted Answer

If the firms collude and act as a monopolist, they will produce half the quantity demanded by the market at the monopoly price. The demand at the monopoly price is 3,000 units. Therefore, each firm will produce and sell 1,500 units. 
However, if Quick Buck cheats by reducing its price to $1, it will capture the entire market demand because it is selling at a lower price than Pushy Sales. Therefore, Quick Buck will sell 3,000 units, and Pushy Sales will sell 0 units.

Quick Buck and Pushy Sales Produce and Sell Identical Products