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-(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 with no marginal cost or 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 250 gadgets,Ray's profits will be:
A)$1,400.
B)$1,250.
C)$1,000.
D)$400.

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 with no marginal cost or 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 250 gadgets,Ray's profits will be:
A)$1,400. 
B)$1,250. 
C)$1,000. 
D)$400.

Quizplus · Accepted Answer

If Margaret decides to cheat and sell an additional 100 gadgets, then the total quantity produced would be 750 (500 from Ray + 350 from Margaret). Using the demand schedule, we find that at a quantity of 750, the price would be $3.50 per gadget.

If Ray continues to produce 250 gadgets, then his total revenue would be:

$3.50 x 250 = $875

His total costs would still be zero, so his profits would be:

$875 - $475 = $400

Therefore, Ray's profits would be $400 if Margaret decides to cheat.

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