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Exercise 7: Competition & Efficiency Name: Problem 7.1. Goodrich and Bridgestone are two firms in the competitive market for tires. The graphs below depict their marginal cost curves. Goodrich Bridgestone (S/tire) MC ($/tire) 400 MC 400 350 350 300 300 250 250 200 200 150 150 100 100 50 50 100 200 300 400 500 600 Tires 100 200 300 400 500 600 Tires (tires/month) (tires/month) (a) Suppose each firm produces 300 tires per day. Goodrich's marginal cost would be |$ and Bridgestone's marginal cost would be |$ Shifting the production of one tire from Bridgestone to Goodrich would increase decrease the combined cost of producing 600 tires by |$ Therefore, splitting production equally across the two firms is efficient inefficient (b) In the competitive equilibrium, the price of a tire is $250. Add this information to the graphs. Mark each firm's profit-maximizing quantity with a letter E, and circle its quantity supplied on the horizontal axis. (c) At the two profit-maximizing choices, Goodrich's marginal cost is |$ per pair, and Bridgestone's marginal cost is $ per pair. (d) The allocation of production across the two firms in the competitive equilibrium is efficient inefficient