1. If a cartel is working properly, its firms will likely be producing where ( M
ID: 1169690 • Letter: 1
Question
1. If a cartel is working properly, its firms will likely be producing where (MCi is each firm i’s marginal cost, MR is market marginal revenue, and P is price):
a.
MCi = MR.
b.
MCi > MR.
c.
MCi < MR.
d.
P = MR.
e. P < MR.
2. The optimal output and price for the cartel shown in the accompanying diagram is:
a.
Q = 200 and P = $80.
b.
Q = 260 and P = $60.
c.
Q = 250 and P = $80.
d.
Q = 500 and P = $75.
e. none of the above.
3. If the monopolist shown in the following figure could practice first-degree price discrimination, the producer surplus would be:
a.
$0.
b.
$225.
c.
$450.
d.
$900.
e.
$1,200.
a.
MCi = MR.
b.
MCi > MR.
c.
MCi < MR.
d.
P = MR.
e. P < MR.
2. The optimal output and price for the cartel shown in the accompanying diagram is:
a.
Q = 200 and P = $80.
b.
Q = 260 and P = $60.
c.
Q = 250 and P = $80.
d.
Q = 500 and P = $75.
e. none of the above.
3. If the monopolist shown in the following figure could practice first-degree price discrimination, the producer surplus would be:
a.
$0.
b.
$225.
c.
$450.
d.
$900.
e.
$1,200.
Explanation / Answer
Q1. Under a cartel, industry output is determined where marginal cost of industry or market equals the marginal revenue of industry or market.
Firms forming cartel is then allocated output to be produced out of this indystry or market output.
Output for each firm is allocated in such a manner that individual firm's marginal cost equals the marginal revenue of industry or market.
Thus, under a perfectly working cartel, its firms are likely to be producing where each firm's marginal cost equals market marginal revenue.
Hence, the correct answer is option (a).
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