O 12/7/2015 11:00 PM A 49.3/100 12/7/2015 08:47 PM Gradebook Print Calculator Qu
ID: 1195955 • Letter: O
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O 12/7/2015 11:00 PM A 49.3/100 12/7/2015 08:47 PM Gradebook Print Calculator Question 12 of 20 ncorrect ncorrect Map sapling. lz, Lauren, Odd, and Ralph started a t-shirt company. They can produce any number of t-shirts at a cost of $2 per t-shirt (both marginal and average). They are the only producers of t-shirts. As monopolists they charge $20 per t- shirt and obtain total profits of $10,000. Now assume there are creative differences, and they split the company in two. Lauren and Ralph join together and compete against lz and Odd. If they compete on quantity, each company would produce 50 t-shirts and charge $12 a t-shirt. (For technical reasons, assume that the quantity demanded is greater than zero for all prices greater than zero.) In response to the price war, lz and Odd decide to put an iguana on the chest of their t-shirt. They convince the world that the iguana is necessary for coolness. If, however, Ralph and Lauren This type of behavior is called: compete directly against Iz and Odd in prices, the market price for t-shirts O Bertrand Competition will be: O Herfindahl Competition Number O Cournot Competition O Product Differentiation economic reason is likely to have caused Iz and Odd put And their profits will be: an iguana on their t-shirts? o ncrease profits Number O Get better customers O Decrease costs Tools O Receive a major fashion award x 10 O Gain notoriety O Previous Give Up & View Solution Check Answer Next Fi Exit 8 HintExplanation / Answer
1.
When firms compete directly against each other in prices, the final market price falls to the marginal cost.
Thus, the market price = $2
2.
Zero economic profits since P=MC
3.
Since firms are diffrentiating their product by adding an extra feature (logo) on the existing and similar product. it is a clear case of product diffrentiation
4.
The only reason firms have to differentiate their products is to increase profits
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