In a perfectly competitive industry, demand is: P = 850-2Q And Industry supply i

Question

In a perfectly competitive industry, demand is:
P = 850-2Q
And Industry supply is :
P = 250 +4Q

The supply is simply the sum of the marginal cost curves of all the firms in the industry. Suppose all the competitve firms collude to form one single monopoly firm. (Collusion changes neither the demand nor the cost conditions in the industry.) Discuss the economic effects of the change in market structure. More specifically, explain the possible changes in the market price and output of the commodity.

Explanation / Answer

P = 850 – 2Q; MC = 250 + 4Q Output level of the perfectly competitive firm will be at the point where P = MC 850 – 2Q = 250 + 4Q 850 – 250 = 4Q + 2Q 600 / 6 = Q Q = 100 P = 850 – 2(100) P = $650 The economic effects: price - $650, quantity - 100

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