Question

Iz, 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 Iz 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 $0. If, however, Ralph and Lauren compete directly against Iz and Odd in prices, the market price for T‑shirts will be

Answer 1

Ralph and Lauren compete directly against Iz and Odd in prices, the market price for T‑shirts will be $2.

Explanation:

• Market price falls to marginal cost when the firms compete against each other. Thus, in this case, the market price for the T-shirt will be $2.
• As, the price is equal to marginal cost as per the given information, the firms profit will lead to 0. there will be no economic profit.
• The given type of differentiation is known to be as the product differentiation.
• The basic reason to put the iguana on the t-shirts is to enhance the profitability.