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. Each firm's output would be _____, and each firm's profit would be _____.
A) 500; $2,500
B) 200; $800
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 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. Each firm's output would be _____, and each firm's profit would be _____.
A) 500; $2,500 
B) 200; $800 
C) 1,000; $500 
D) 1,000; $10,000

Quizplus · Accepted Answer

In a cartel maximizing total industry profits, the firms will produce where marginal cost equals marginal revenue. Assuming the demand schedule allows for a price where total output is 400 units (200 each) and the price is $6, each firm would have a profit of ($6 - $2) * 200 = $800.

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