Map Blue Sun enjoyed a monopoly on chocolate eggs before Reynold\'s Wrappers ent

Question

Map Blue Sun enjoyed a monopoly on chocolate eggs before Reynold's Wrappers entered. Now their market share has dropped to 90% with Reynold's Wrappers controlling 10% 10 To the right is the demand curve for this market, showing the number of boxes of chocolate eggs demanded each month Currently, the market is at point A, demanding 3.5 million boxes Enter all answers in millions to 2 decimal places Price (S) It costs either firm $4 to produce one box. What is Blue Sun's profit per month? emand Number million 0 1 2 3 4 5 6 7 8 9 10 11 12 13 Quantity of boxes (millions) To defend its position, Blue Sun is thinking of cutting the price to $1 to drive Reynold's Wrappers out of business Such a price cut would be predatory pricing Assume the firms would retain the same market share How much would Blue Sun lose per month (enter answer as a positive number)? If Reynold's Wrappers matches this price cut, how much would it lose per month? Number Number million million Tools

Explanation / Answer

market quantity is 3.5 million .

Blue son having 90% market share.

blue son supplied = 3.5 -10% = 3.15 million boxes.

blue son cost of one box =$4

blue son profit = TR-TC

profit = (3.15 * 7) - ( 3.15 *4)

profit = 22.05 - 12.6 = 9.45

so, Blue son profit = $9.45 million.

b) blue son profit when he reduced the price = (3.15 * 6) - (3.15 *4)

profit = 18.9 - 12.6 = 6.3

so, Blue son lose per month = 9.45 - 6.3 = 3.15

blue son lose per month = $3.15 million.

d) Reynold profit before match this price = ( 0.35 *7 ) - ( 0.35*4)

= 2.45 - 1.4 = 1.05

Reynold profit after mathcing price = (0.35 *6 ) - ( 0.35*4

= 2.1 -1.4 = 0.7

Reynold lose = 1.05 -0.7 = $0.35 million.

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