Asked by Princess Ritsu on Jun 03, 2024
Verified
(Table: Demand Schedule of Gadgets) Use Table: Demand Schedule of Gadgets.The market for gadgets consists of two producers,Margaret and Ray.Each firm can produce gadgets at a marginal cost of $2 and no fixed cost.If these two producers formed a cartel,agreed to split production of output evenly,and acted to maximize total industry profits,total industry output would be _____,and the price would be _____.
A) 1,000;$10
B) 100;$9
C) 400;$6
D) 500;$5
Marginal Cost
Marginal Cost is the cost of producing one more unit of a good or service, a crucial concept in economics for decision-making and pricing strategies.
Cartel
A formal agreement among competing firms in an industry to control prices, limit output, or divide markets.
Total Industry Output
The aggregate production of goods and services in a specific industry within a given period.
- Detail the repercussions of independent corporate moves on the total revenue of the industry within a cartel framework.
- Elucidate the variances in market outcomes between perfect competition and collusive oligopolies.
Verified Answer
To determine the price, we need to find the total quantity demanded at that level of output. From the demand schedule, we can see that at a quantity of 400, the market demand is 600 units.
Since the cartel would control all 400 units of output, they would have a monopoly and could charge a price such that the quantity demanded would be 400 units. From the demand schedule, we can see that at a price of $6, the quantity demanded is 400 units.
Therefore, if Margaret and Ray formed a cartel, agreed to split production of output evenly, and acted to maximize total industry profits, the total industry output would be 400 and the price would be $6. So, the answer is (C) 400;$6.
Learning Objectives
- Detail the repercussions of independent corporate moves on the total revenue of the industry within a cartel framework.
- Elucidate the variances in market outcomes between perfect competition and collusive oligopolies.
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