Cecil's Home Appliances Sells High Quality Washing Machines

Essay

Cecil's Home Appliances sells high quality washing machines. Cecil's marginal cost function is:
MC^C(Q_C) =
. Zach's Appliances sells low quality washing machines. Zach's marginal cost function is: MC^C(Q_Z) =
. The market demand for high quality washing machines is:
= 8,250 - 10P_H. The market demand for low quality washing machines is:
= 5,000 - 10P_L. If Consumer's can distinguish between the quality of Cecil's and Zach's machines (and Cecil and Zach behave as price takers), determine the equilibrium price of washing machines. Calculate Cecil's producer surplus. Now, suppose that consumers can not distinguish between the quality of Cecil's and Zach's washing machines. In this case, the demand for washing machines is: Q^D = 6,625 - 10P. Determine the joint market supply curve. Calculate the equilibrium price of washing machines and the quantity brought to market by Cecil and Zach. What is Cecil's producer surplus? If Cecil offers a warranty on his washing machines, his marginal cost function becomes: MC^C(
) =
. However, consumers will then perceive his machines to be high quality. Should Cecil offer the warranty?