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Microeconomics

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Monopoly: Fly in the Ointment

MICRO-HSLFWJ

The market for aloe lotion is currently a two-firm market, featuring the firms Allo and FaceStuff.

The demand for aloe lotion is $P = 120 - Q_1 - Q_2$, where $Q_1$ is the quantity the first firm, Allo, produces, and $Q_2$ is the quantity the second firm, FaceStuff, produces.

Allo has a constant marginal cost of $MC=2$ to produce another unit of aloe lotion and has fixed costs of $216$.

FaceStuff has a marginal cost such that it maximizes profits by producing $Q_2=10$ units each period.

Allo and Facestuff are having a meeting. Allo would like FaceStuff to drop out of the market entirely so that Allo can act as a monopolist. What is the highest amount of money Allo is willing to pay FaceStuff to shut down?