Suppose Acme and Mega produce and sell identical product with zero marginal and average cost.Following is the market demand and marginal revenue curves for the product.
Refer to the figure above.Suppose Mega and Acme have colluded to work as a pure monopolist,but Mega cheats on Acme and reduces its price to $1.00 each.If Acme matches the price cut and customers are evenly split between the two firms,what will Acme's economic profit be?
A) $75
B) $100
C) $150
D) $200

Question

Suppose Acme and Mega produce and sell identical product with zero marginal and average cost.Following is the market demand and marginal revenue curves for the product. 
Refer to the figure above.Suppose Mega and Acme have colluded to work as a pure monopolist,but Mega cheats on Acme and reduces its price to $1.00 each.If Acme matches the price cut and customers are evenly split between the two firms,what will Acme's economic profit be?
A) $75 
B) $100 
C) $150 
D) $200

Quizplus · Accepted Answer

At $1.00 total demand is 150 units.Average costs are zero,so each firm's profits are $75.

Suppose Acme and Mega Produce and Sell Identical Product with Zero