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(Table: Demand Schedule of Gadgets) Use Table: Demand Schedule of Gadgets.The market for gadgets consists of two producers,Margaret and Ray.Each firm can produce gadgets with no marginal cost or fixed cost.Suppose that these two producers have formed a cartel,agreed to split production of output evenly,and are maximizing total industry profits.If Margaret decides to cheat on the agreement and sell 100 more gadgets,the market price of gadgets will be:
A) $4.
B) $5.
C) $6.
D) $7.
Marginal Cost
The uplift in total expenditure caused by the production of one more unit of a product or service.
Fixed Cost
Costs that do not change with the level of output produced, such as rent, salaries, and insurance.
Cartel
An agreement among competing firms to control prices or exclude entry of a new competitor in the market, often resulting in higher prices and restricted supply.
- Understand the concepts of cartel formation and the implications of cheating within a cartel in duopoly markets.
- Understand the concepts of quantity effect and price effect on firm profits resulting from changes in produced quantities.
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Learning Objectives
- Understand the concepts of cartel formation and the implications of cheating within a cartel in duopoly markets.
- Understand the concepts of quantity effect and price effect on firm profits resulting from changes in produced quantities.
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