Iz, Lauren, Odd, and Ralph started a t-shirt company. They can produce any number of t-shirts at a cost of $2 per t-shirt (both marginal and average). They are the only producers of t-shirts. As monopolists they charge $20 per t-shirt and obtain total profits of $10,000. Now assume there are creative differences, and they split the company in two. Lauren and Ralph join together and compete against Iz and Odd. If they compete on quantity, each company would produce 50 t-shirts and charge $12 a t-shirt. (For technical reasons, assume that the quantity demanded is greater than zero for all prices greater than zero.)

If, however, Ralph and Lauren compete directly against Iz and Odd in prices, the market price for t-shirts will be:

And their profits will be:

In response to the price war, Iz and Odd decide to put an iguana on the chest of their t-shirt. They convince the world that the iguana is necessary for coolness. This type of behavior is called? (abc or d?)

a. Cournot Competition
b. Bertrand Competition
c. Product Differentiation
d. Herfindahl Competition

What economic reason is likely to have caused Iz and Odd put an iguana on their t-shirts? (abcd or e?)

a. Receive a major fasion award
b. Gain noteriety
c. Increase profits
d. Decrease profits
e. Get better customers