Use the following to answer question:
-(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

Question

Use the following to answer question: 
-(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

Quizplus · Accepted Answer

If Margaret and Ray form a cartel and split production evenly, each of them would produce 200 units of gadgets. Thus, in total, the industry would produce 400 units of gadgets (200 + 200).

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.

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