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What will total profits in the salad market be

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BACKGROUND: Suppose the Jersey Club, a local monopoly is currently selling its profit maximizing quantity of 100 salads for 7.5. The marginal Cost of a salad is equal to Average Total Cost and is $3. The Demand for Salads is given by Qd=240-20P. The Monopolistic profit is $450.

Suppose that GREEN salads, a potential competitor, now gets permission to enter the market. Jersey Club people optimize and will all go wherever salad prices are lowest. If prices are the same, they split their business equally. Suppose the Jersey Club and the GREEN salads continue to sell salads at 7.5.

a) How many salads will each supplier sell?

b) What will total profits in the salad market be?

c) Does GREEN salads have an incentive to lower their price to $7?

d) Explain your answer in C using numbers to support your answer (Hint: Use Qd)

e) What happens to total profits in the salad market? (increase, decrease, stay the same)

Reference no: EM132482489

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