Answered: What price will Ford charge? What price…

What price will Ford charge? What price will Chevrolet charge once Ford has set its price? What is Ford’s profit after Chevrolet’s response?

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter12: The Cost Of Production

Section: Chapter Questions

Problem 5PA

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Concept explainers

Cost of Production

In economic theory, production costs are the costs incurred by an industrial organization when it engineers a project or provides a service that generates revenue and benefits. Labor costs, raw materials, consumable manufacturing costs, and general overhead sum up, accounting for production costs. Total cost data is calculated by combining total direct costs of materials, labor costs, and total production costs.

Question

Ford's Chevrolet's Ford’s Chevrolet’s

Selling Selling Profits Profits

Price Price (millions) (millions)

$ 4,000 $ 4,000 $ 8 $ 8

4,000 8,000 12 6

4,000 12,000 14 2

8,000 4,000 6 12

8,000 8,000 10 10

8,000 12,000 12 6

12,000 4,000 2 14

12,000 8,000 6 12

12,000 12,000 7 7

What price will Ford charge?
What price will Chevrolet charge once Ford has set its price?
What is Ford’s profit after Chevrolet’s response?
If the two firms collaborated to maximize joint profits, what prices would they set?
Given your answer to part (d), how could undetected cheating on price cause the cheating firm’s profit to rise?

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