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. 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 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. 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

In a cartel, firms act as a monopoly to maximize profits. They would produce where marginal cost equals marginal revenue. Assuming the demand schedule shows that at 400 units, the price is $6, this would maximize profits given the marginal cost of $2.

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