Question

Suppose you are a manager of a firm that operates in a duopoly. Recently, the state attorney general fined you and your competitor for price fixing. In your market, firms only set prices, not total quantities to sell. From previous experience, you know your competitor has a marginal cost of $ 7.80 . Further, your marginal costs are $ 7.78 . The previous cartel price was $10.00, when you and your competitor were price fixing. What price level do you now choose to maximize profits

Answer 1

Answer:

$7.79

Explanation:

The price level that should be choose in order to maximize the profit is $7.79

As when there is a price fixing that lies between the two rivalrs so if one rivalr select to fix the price it should not be more than the rivalr marginal cost i.e. price and it is more than the price .

here the price fixing is $10 so the price level would be less than the rivalr price and more than the marginal cost

Therefore it is $7.79