Question

3.Assume that a market was initially perfectly competitive. In response to equity concerns, the government allowed all of the sellers to form a cartel, effectively monopolizing the market. The resulting monopoly does not price discriminate. Using a carefully labelled graph:

i. Compare the price and output before and after the creation of the cartel.

ii. Identify the impact on consumer surplus resulting from the cartel.

iii. In general, would consumer expenditure on this good increase or decrease as the result of the cartel? Explain.

iv. Identify any deadweight loss resulting from the cartel.

v. Are the cartel members better off? By how much?

Answer 1