Question
Suppose that the demand and supply relations are given by the following equations QD=12,000-2,000P (Market Demand) QS=1,000P (Market Supply) where Q is quantity of products,
Suppose that the demand and supply relations are given by the following equations
QD=12,000-2,000P (Market Demand)
QS=1,000P (Market Supply)
where Q is quantity of products, and P is the price per unit.
(A). Calculate the perfectly competitive industry equilibrium price/output combination.
(B). Now assume that the industry output is organised into a cartel. Calculate the industry price/output combination that will maximise profits for cartel members. Note that if demand equation P=a-bQ, then marginal revenue MR=a-2bQ. (10 points)
(C). Compare your answers to parts (1) and (2). Calculate the price/output effects of the cartel.
(D). Calculate the social welfare loss after the the industry output is organised into a cartel.
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