Company B and Company F are two firms producing a homogeneous product involving the sale of street lights. Due to govt oversight their product requires approval by an energy oversight group before products can be sold. Both companies have a MC =$8 (MC =$8) and no fixed costs (FC =0). The demand for their product is given by the function P=32-Q where P is in dollars and Q is the product quantity. The demand function is a blue curve line running from point 0, 32 and point 32, 0 (circle symbols, marked D) on a graph. Because there are only two producers of the lights, the total quantity in the market is given as Q = Q1 + Q2 where Q1 is the number of times produced by company B and Q2 is the number produced by company F.
In an attempt to maximize profits Firm B and F decide to form a cartel called T-Light
a. Using an orange line graph the T-Lights marginal cost (MC). Using a purple line (diamond symbols) graph T-Light's marginal revenue (MR). The graph runs from 0-32 quantity x axis and 0-32 price y axis.
b. T-Light will choose to produce a total (market) quantity of ____ (options for X are - 6, 18, 8, 12, 16, 24) .
c. The market price will be (options for Y are $20, $16, $8, $26, $14, $24).
d. Company B and Company F will each produce ________(options for Z are 4, 12 6, 8, 3, 9) and make a profit of ________________ (options for W are $72, $0, $144, $64, $36, $108
e. Graph the equilibrium market price that T-Light cartel will choose.
f. Assuming that both companies have the cost and demand information above, which of the following is not a reason for the T-Light cartel to fail?
1. high profits made by the cartel members will attract other firms to the market
2. Collusions are illegal and cartels are often fined large sums
3. A cartel will not increase profits for its members, so there is no incentive to collude
4. Lure of higher profits will entice firms to cheat on the cartel agreement.
g. Company F is considering cheating on the cartel agreement. Assuming company B doesn't cheat, Company B will produce ________(options for K = 15, 6,9,12,8,)
h. and company F will produce _______(options for M = 0,15,24,6,9,12,8)
i. Then the equilibrium market quantity will be __(options for N = 15,24,20,16,12,18)
j. The equilibrium market price will be __________(options are = $16, $12, $17, $24, $20)
k. Company B will make a profit of _______ options are $0, $54, $64, $36, $81, $96)
l. Company F will make a profit of _________(options are $54, $64, $72, $81, $96, $144)