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

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

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