Use the following to answer questions:
-(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for 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. Suppose that these two producers have formed a cartel, agreed to split production of output evenly, and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets but Ray continues to sell 200 gadgets, Ray's profits will be:
A) $1,400.
B) $1,250.
C) $600.
D) $400.

Question

Use the following to answer questions: 
-(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for 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. Suppose that these two producers have formed a cartel, agreed to split production of output evenly, and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets but Ray continues to sell 200 gadgets, Ray's profits will be:
A) $1,400. 
B) $1,250. 
C) $600. 
D) $400.

Quizplus · Accepted Answer

If Margaret cheats and sells 100 more gadgets, the total quantity increases, reducing the market price. Ray's profits will be calculated based on the new price and his output of 200 gadgets, leading to a profit of $600.

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