Examine the table Demand Schedule for Gadgets. The market for gadgets consists o

Question

Examine the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets at a marginal cost of $0. The table shows the market demand schedule for gadgets. Suppose that these two producers have formed a cartel and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets, Margaret's quantity effect will be a(n):

A. decrease in profit of $250.

B. increase in profit of $150.

D. decrease in profit of $400.

A. decrease in profit of $250.

B. increase in profit of $150.

D. decrease in profit of $400.

Explanation / Answer

In cartel,they were producing Q=500(250 each) at price=5 to maximize revenue=500(5)=2500

If Margaret cheats and sells 100 more at price=4,he gets additional profit of 100(4)=400

So there is increase in profit of 400 $

Hence correct option is C.

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