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

Colluding and acting as a monopolist, Acme and Mega together will produce half of the quantity demanded at the monopoly price. From the demand curve, we can see that the monopoly quantity will be 10 units (i.e., 20 units will be demanded at the price of $10).

Each firm will produce 5 units, and the market price will be $10. At this price, each firm's revenue will be $50 (10 units x $5 per unit). Since the firms face zero marginal and average cost, their profit will be equal to their revenue.

Therefore, Mega's profit will be:

Profit = Revenue - Cost 
Profit = $50 - $0 
Profit = $50

Hence, the correct answer is C.

Suppose Acme and Mega Produce and Sell Identical Products and Face