Table illustrates the revenue conditions facing ABC, Inc., and X

Table illustrates the revenue conditions facing ABC, Inc., and XYZ, Inc., which operate as competitors in the U.S. calculator market. Each firm realizes constant long-term costs (MC AC) of $4 per unit. On graph paper, plot the enterprise demand, marginal revenue, and MC AC schedules. On the basis of this information, answer the following questions.

PRICE AND MARGINAL REVENUE: CALCULATORS Marginal Price ($) Quantity Revenue ($) 2 6. 2 6.

a. With ABC and XYZ behaving as competitors, the equilibrium price is $_____ and output is _____. At the equilibrium price, U.S. households attain $_____ of consumer surplus, while company profits total $_____.

b. Suppose the two organizations jointly form a new one, JV, Inc., whose calculators replace the output sold by the parent companies in the U.S. market. Assuming that JV operates as a monopoly and that its costs (MC=AC) equal $4 per unit, the company’s output would be at a price of $ _____, and total profit would be $_____. Compared to the market equilibrium position achieved by ABC and XYZ as competitors, JV as a monopoly leads to a deadweight loss of consumer surplus equal to $ _____.

c. Assume now that the formation of JV yields technological advances that result in a per-unit cost of only $2; sketch the new MC = AC schedule in the figure. Realizing that JV results in a deadweight loss of consumer surplus, as described in part b, the net effect of the formation of JV on U.S. welfare is a gain/ loss of $ _____. If JV’s cost reduction was due to the wage concessions of JV’s U.S. employees, the net welfare gain/ loss for the United States would equal $ _____. If JV’s cost reductions resulted from changes in work rules leading to higher worker productivity, the net welfare gain/loss for the United States would equal $ _____.