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 with no marginal cost or fixed cost. If these two producers formed a cartel, split the production of output equally, and acted to maximize total industry profits, each firm's output would be _____ and each firm's profit would be _____.
A) 500; $2,500
B) 250; $1,250
C) 1,000; $500
D) 1,000; $10,000

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 with no marginal cost or fixed cost. If these two producers formed a cartel, split the production of output equally, and acted to maximize total industry profits, each firm's output would be _____ and each firm's profit would be _____.
A) 500; $2,500 
B) 250; $1,250 
C) 1,000; $500 
D) 1,000; $10,000

Quizplus · Accepted Answer

In a cartel, firms act together to maximize total profits by reducing output to increase prices. If they split production equally, each firm would produce 250 units, and with a price of $5 per unit, each firm's profit would be $1,250.

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