What would support or oppose the legislation

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Reference no: EM13239184

You are the manager of a firm that competes against four other firms by bidding for government contracts. While you believe your products is better than the competition, the government purchasing agent views the products as identical and purchases from the firm offering the best price. Total government demand is Q = 750 - 8P and all five firms produce at a constant marginal cost of $50. For security reasons, the government has imposed restrictions that permit a maximum of five firms to compete in this market; thus entry by new firms is prohibited. A member of Congress is concerned because no restrictions have been placed on the price that the government pays for this product. In response, she has proposed legislation that would award each existing firm 20% of a contract for 270 units at a contracted price of $60 per unit. Would you support or oppose this legislation? Explain. (Hint: Absent the legislation, the market will be a Bertrand oligopoly with a homogeneous product. In this case, what will be your profit? If the legislation is adopted, what then will be your profit? Which is bigger?)

Reference no: EM13239184

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