Question

Suppose that the marginal cost of mining gold is constant at $300 per ounce and the demand schedule is as follows:
 

1st attempt

Part 1   (1.4 points)

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If the number of suppliers is large, what would be the price of gold?    $   per ounce 

What would be the quantity?      oz. 

Part 2   (1.4 points)

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If there is only one supplier, what would be the price of gold?    $  per ounce 

What would be the quantity?      oz. 

Part 3   (1.4 points)

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If there are only two suppliers and they form a cartel, what would be the price of gold?    $   per ounce 

Assuming the two suppliers each produce equal amounts, how much gold would each supplier produce?      oz. 

 

Part 4   (0.7 point)

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Suppose that one of the two cartel members in Part 3 decides to increase its production by 1,000 ounces while the other member keeps its production constant. What will happen to the revenues of both firms?

Choose one:A.  The firm that increases production gets higher revenue, and the other firm’s revenue stays the same.B.  The firm that increases production gets lower revenue, but the other firm’s revenue falls even more.C.  The firm that increases production gets higher revenue, and the other firm’s revenue falls.D.  The firm that increases production gets higher revenue, and the other firm’s revenue also rises, but by a smaller amount.E.  The revenue of both firms stays the same.

Answer 1

Answer 2

Write the formulae as follows: TR PricexQuantity ATR MR- AQ Calculate the marginal and total revenue as follows: A D MR Price Quantity TR 1 1000 1000 1000000 2 900 2000 1800000 800 800 3000 2400000 600 4 700 4000 2800000 400 5 600 5000 3000000 200 6 500 6000 3000000 0 7 400 7000 2800000 -200 8 2400000 300 8000 -400 9 Represent the formula excel sheet as follows A C Price MR Quantity 1000 2000 3000 4000 TR 1 - A2 *B2 - A3 * B3 - A4*B4 - A5 * B5 - A6 * B6 - A7 *B7 - A8 *B8 - A9 *B9 2 1000 ( C3- C2 ) ( B3-B2) |-C4-С3)(В4-В3) ЕC5-C4)(B5-B4) |-(C6-C5) (B6-B5) (C7-C6) (B7-B6) |=(C8-C7) (B8-B7) - (C9-C8)/(B9-B8) 3 900 4 800 5 700 5000 6 600 6000 7000 8000 7 500 8 400 9 300 a If the number of supplies is large, the price would be $300 and the quantity is S,000 oz b) only equal to marginal If there is supplier, then the price will be at the point where marginal one revenue 1s cost is $700 and quantity supplied is 4,000 Thus, the price OZ.

As there are two sellers, quantity of 4,000 oz will be divided equally among them Thus, if there are two sellers, price is $700, and quantity is 2,000 oz for each seller d) As the quantity increases, price declines and that leads to decline in the total revenue of the other firms Thus, the firm that increases production gets higher revenue, and the other firm's revenue falls