Question

Question 4 [18 points] Two firms in a particular industry face a market demand curve given by the equation P= 120 -0.25Q. The marginal cost is $40 per unit and the marginal revenue is MR= 120 -0.5Q. a) Draw the demand curve to scale on a diagram, and then insert the corresponding marginal revenue curve and the MC curve. Note: When calculating your points, please round the numbers to the nearest whole number. Demand Demand Marginal Revenue Marginal Cost 1607 Price 4460 Reset 120 180 240' 300 Quantity 360' 420' 480 b) If these firms got together to form a cartel, what output would they produce, and what price would they charge? (If necessary round your answers to two decimal places.) Output of Cartel = 0 Selling Price = $0 c) If the producers stay within the confines of the agreement, what will happen to both the producers' profit? The other producer's profit will: Select one Select one Increase Official Time: 15:30:06 Decrease No change SUBMIT AND MARK SAVE AND CLOSE

Answer 1

DELAP Date a P= 120 -0.280 MR = 120 - 0.50 120 22 b) 2.90 480 ou Cartel act as a monopoly MR-MC 120 -0.50 = yo sos0.560 10=1607 A p = 1200.21160) - 120 uo-80 Ouiput Cartie = 160 Selling pruie = 40 No change if collussion is confined