Author Question: A group of firms, operating in collusion, incur costs of production of 15 per unit. The price that ... (Read 54 times)

kodithompson · **on:** Jun 30, 2018

A group of firms, operating in collusion, incur costs of production of 15 per unit. The price that currently maximizes their profit is 19 . Knowing that potential competitors could enter the market with production costs of 17 per unit, what price are the colluders likely to charge? Why?

Question 2

Which of the following is an advantage of having centralized ownership and responsibility for capital goods?
a. It allows firms to avoid the depreciation cost of capital equipment.
b. It increases the capital per worker ratio.
c. It spreads the investment risk associated with acquisition of capital goods.
d. It resolves the problem of continuity.

bfulkerson77 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

The firms are likely to charge a price just less than 17, the cost of production of new entrants. Established firms may deliberately hold prices low, and below the short-run profit maximizing point, in order to discourage any newcomers from entering the market.

Answer to Question 2

D