An industry has two colluding firms that act so as to maximize total profit in the industry and then split the profits equally.Firm 1 has cost function c( y)= 8y.Firm 2 has cost function c( y)= y².Each firm produces an integer number of units.Market demand is given by Y( p)= 56 - p. A)Firm 1 should produce 10 units and firm 2 should produce 10 units. B)Firm 1 should produce 20 units and firm 2 should produce 4 units. C)Each firm should produce 12 units. D)Firm 1 should produce 24 units and firm 2 should produce 2 units. E)None of the above.

Question

Quizplus · Accepted Answer

To maximize total profit, the firms should produce where marginal cost equals marginal revenue. Solving for equilibrium, Firm 1 should produce 20 units and Firm 2 should produce 4 units to maximize joint profits and split them equally.

An Industry Has Two Colluding Firms That Act So as to Maximize