Question

The following table shows your neighborhood’s demand for cell phone coverage. Assume that only two firms (Sprint and Verizon) sell in this market, that each firm offers the same quality of service, and that each firm’s marginal cost is constant and equal to $0 because of excess capacity.

Price per plan (P) Number of customers (Q) Total revenue per month (TR)
$0 10000 $0
$1 9000 $900
$2 8000 $1,600
$3 7000 $2,100
$4 6000 $2,400
$5 5000 $2,500
$6 4000 $2,400
$7 3000 $2,100
$8 2000 $1,600
$9 1000 $900
$10 0 $0



a. If Sprint and Verizon each agreed to supply half of the quantity a monopolist would supply, the agreement would specify that each company supplies ______ plans.

Answer 1

If Sprint and Verizon each agreed to supply half of the quantity a monopolist would supply 5,000 plans, the agreement would specify that each company supplies $2,500 plans.

How to determine the quantity of plans that each company would supply

To determine the quantity of plans that each company would supply if Sprint and Verizon each agreed to supply half of the quantity a monopolist would supply, identify the quantity at which the total revenue is maximized.

In a monopoly, the quantity is determined by finding the point where marginal revenue (MR) equals zero.

Looking at the given table, we can observe that the total revenue is maximized at $2,500 when 5,000 plans are sold.

Therefore, the quantity that a monopolist would supply is 5,000 plans.

If Sprint and Verizon each agreed to supply half of the quantity a monopolist would supply, the agreement would specify that each company supplies $2,500 plans.