Table 17-7.The table shows the demand schedule for a particular product.

-Refer to Table 17-7.Suppose the market for this product is served by two duopolists who have formed a cartel and are colluding to set the price and quantity in this market.If the marginal cost to produce this product is constant at $2 per unit,then what price will the cartel set in this market?
A) $4
B) $5
C) $6
D) $7

Question

Table 17-7.The table shows the demand schedule for a particular product.
 
-Refer to Table 17-7.Suppose the market for this product is served by two duopolists who have formed a cartel and are colluding to set the price and quantity in this market.If the marginal cost to produce this product is constant at $2 per unit,then what price will the cartel set in this market?
A) $4 
B) $5 
C) $6 
D) $7

Quizplus · Accepted Answer

In a cartel, firms collude to act like a monopoly, setting a price where marginal cost equals marginal revenue. Assuming the demand curve is linear, the price will be set at the midpoint between the marginal cost ($2) and the maximum price consumers are willing to pay, which is typically higher than $2. Without specific demand data, $6 is a reasonable estimate for a collusive price above marginal cost.