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The Mapo Company and the Fringa Company are the only two firms that produce a particular part used in the construction of the new Tevo system

Economics

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The Mapo Company and the Fringa Company are the only two firms that produce a particular part used in the construction of the new Tevo system. The demand for tevo’s is increasing due to an increase in popularity. This leads to an increase in the demand of the particular part. The demand curve for the product is:

P = 1540 – 3.5Q

Where P is the price (in FCFA) of the product and Q is the total amount demanded.

The total cost function for the Mapo Company is:

TCm = 1230Qm

Where TCM is the total cost (in FCFA) and QM is its output.

The total cost function for the Fringa Company is:

TC_F = 1190Q_F

Where TCF is the total cost (in FCFA) and QF is its output.

a) Should these two firms collude? Why or why not?

b) What are the advantages of colluding? Are there any risks?

c) If these two firms collude, and if they want to maximize their profits, how much will the Mapo Company produce?

d) Using the above conditions, how much will the Fringa Company produce?

e) Will Mapo want to collude?