sapling earning Blue Sun enjoyed a monopoly on chocolate eggs before Reynold\'s

Question

sapling earning Blue Sun enjoyed a monopoly on chocolate eggs before Reynold's Wrappers entered. Now their market share has dropped to 85% with Reynold's Wrappers controlling 15% 10 To the right is the demand curve for this market, showing the number of boxes of chocolate eggs demanded each month Currently, the market is at point A, demanding 3.5 million boxes Enter all answers in millions to 2 decimal places. Price It costs either firm $4 to produce one box. What is Blue Sun's profit per month? Demand Number million 0 1 2 3 4 5 6 7 8 9 10 11 12 13 Quantity of boxes (millions) defend its position, Blue Sun is thinking of cutting the price to $1 to drive Reynold's Wrappers out of business. Such a price cut would be Select answer tying Assume the firms would rea dominant strategy share wrappers matches this price How much would Blue Sur resale price maintenance er answer If Reynold's cut, how much would it lose per month? as a positive number)? predatory pricing Number Number million million

Explanation / Answer

(a) At point A, price = $7

Profit = Q x (P - Cost) = 3.5 million x $(7 - 4) = 3.5 million x $3 = $10.5 million

(b) A price of $1 will be Predatory Pricing because price falls less than costs.

(c) Reynold's market share = 15% x 3.5 million = 0.525 million

So, Reynold's loss = 0.525 x (Cost - P) = 0.525 x $(4 - 1) = 0.525 x $3 = $1.575

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