Presently, Alpha Chemical and Beta Cleaners are the only suppliers of services that clean and refurbish large holding tanks at manufacturing plants in the Northeast. No other suppliers have the equipment necessary to perform these treatments. The market inverse demand for these cleaning services is given below. P = 800-80 where P is price per treatment and Q is total number of treatments per week. For simplicity, also assume that neither firm has fixed costs. From company records, you are given the following variable cost function for each firm: TVC₁ = 30 TVC,=5Q In the work that follows, you may round all your results to 2 decimal places to reduce the clutter in your answers. a. Suppose Elon Must is contemplating buying both companies and since Alpha has lower operating costs, his first thought is to shut down Beta and supply the entire market as a single plant monopoly. If he does this, what price will he charge per treatment and how many treatments will he sell each week? What profits will he expect to earn? b. Must has second thoughts about shutting down Beta. If he decides to go ahead with the purchase and keep Beta in operation, he will operate the two plants as a multiplant monopoly. If he decides to go ahead and buy the two firms, what price will he charge per treatment and how many treatments will he sell each week? What profits will he expect to earn? How many treatments will be performed by each operation? c. Summarize the results of your findings over the two possible outcomes. In your summary include price, quantity, and industry profits. Comment on your results.
Presently, Alpha Chemical and Beta Cleaners are the only suppliers of services that clean and refurbish large holding tanks at manufacturing plants in the Northeast. No other suppliers have the equipment necessary to perform these treatments. The market inverse demand for these cleaning services is given below. P = 800-80 where P is price per treatment and Q is total number of treatments per week. For simplicity, also assume that neither firm has fixed costs. From company records, you are given the following variable cost function for each firm: TVC₁ = 30 TVC,=5Q In the work that follows, you may round all your results to 2 decimal places to reduce the clutter in your answers. a. Suppose Elon Must is contemplating buying both companies and since Alpha has lower operating costs, his first thought is to shut down Beta and supply the entire market as a single plant monopoly. If he does this, what price will he charge per treatment and how many treatments will he sell each week? What profits will he expect to earn? b. Must has second thoughts about shutting down Beta. If he decides to go ahead with the purchase and keep Beta in operation, he will operate the two plants as a multiplant monopoly. If he decides to go ahead and buy the two firms, what price will he charge per treatment and how many treatments will he sell each week? What profits will he expect to earn? How many treatments will be performed by each operation? c. Summarize the results of your findings over the two possible outcomes. In your summary include price, quantity, and industry profits. Comment on your results.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Presently, Alpha Chemical and Beta Cleaners are the only suppliers of services that clean and
refurbish large holding tanks at manufacturing plants in the Northeast. No other suppliers have the
equipment necessary to perform these treatments. The market inverse demand for these cleaning
services is given below.
P=800-80
where P is price per treatment and Q is total number of treatments per week. For simplicity, also
assume that neither firm has fixed costs. From company records, you are given the following
variable cost function for each firm:
TVC₁ = 30
TVCg =5Q
In the work that follows, you may round all your results to 2 decimal places to reduce the clutter
in your answers.
a. Suppose Elon Must is contemplating buying both companies and since Alpha has lower
operating costs, his first thought is to shut down Beta and supply the entire market as a single
plant monopoly. If he does this, what price will he charge per treatment and how many
treatments will he sell each week? What profits will he expect to earn?
b. Must has second thoughts about shutting down Beta. If he decides to go ahead with the
purchase and keep Beta in operation, he will operate the two plants as a multiplant
monopoly. If he decides to go ahead and buy the two firms, what price will he charge per
treatment and how many treatments will he sell each week? What profits will he expect to
earn? How many treatments will be performed by each operation?
c. Summarize the results of your findings over the two possible outcomes. In your summary
include price, quantity, and industry profits. Comment on your results.
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