Suppose there are only two driveway paving companies in a small town, Asphalt Inc. and Blacktop...

Suppose there are only two driveway paving companies in a small town, Asphalt Inc. and Blacktop Bros. The inverse demand curve for paving services is P = 1, 600 ? 20Q, where quantity is measured in the number of pave jobs per month and price is measured in dollars per job. The two firms have an identical marginal cost of $400 per driveway.

(a) If the two firms collude and act like a monopoly, splitting the work and profits evenly, how many driveways will each firm pave and at what price? How much profit will each firm make?

(b) Does Asphalt Inc. have an incentive to cheat by paving one more driveway each month?

(c) Suppose each firm decides to pave one more driveway each month. Does Asphalt Inc. have an incentive to cheat?

Expert Solution

Rahul Sunny answered 2 years ago

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Suppose there are only two driveway paving companies in a small town, Asphalt Inc. and Blacktop...

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