Question

Table 17-9 The table shows the demand schedule for a particular product. Quantity Price 0 16...

Table 17-9 The table shows the demand schedule for a particular product.

Quantity Price
0 16
1 14
2 12
3 10
4   8
5   6
6   4
7   2
8   0

Refer to Table 17-9. Suppose the market for this product is served by two firms that have formed a cartel. If the marginal cost of production is $4 and the fixed cost is $6, the combined profit of the cartel will be

A. $24
B. $6
C. $12
D. $32
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Homework Answers

Answer #2

Option C

$12

TC=FC+MC*Q ........ the MC is constant so it is equal to average variable cost

MC=$4 at all levels

TR=P*Q

MR(n)=(TR(n)-TR(p))/(n-p)
MR(n)= MR of n th unit of output
TR(n)=TR of n units of output
TR(p)=TR of p units of output
it is true for n>p

profit=TR-TC

-------------------------

A cartel maximize profit at MR=MC or the nearest lower MC

the output is Q=3 units and P=$10

profit=$12

Quantity Price FC VC TC MC TR MR Profit
0 16 6 0 6 0 -6
1 14 6 4 10 4 14 14 4
2 12 6 8 14 4 24 10 10
3 10 6 12 18 4 30 6 12
4 8 6 16 22 4 32 2 10
5 6 6 20 26 4 30 -2 4
6 4 6 24 30 4 24 -6 -6
7 2 6 28 34 4 14 -10 -20
8 0 6 32 38 4 0 -14 -38
answered by: anonymous
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