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In a perfectly competitive market, industry demand is: P = 850 – 1Q, and industry supply...

In a perfectly competitive market, industry demand is: P = 850 – 1Q, and industry supply is: P = 250 + 4Q (Supply is the sum of the marginal cost curves of the firms in the industry). If instead all of the firms behave as a cartel, prices will increase by ____.

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Answer #1

A cartel work like monopoly where it produces at MR=MC

the supply curve denotes the marginal cost(MC).

Marginal revenue is

MR=850-2Q...............An MR curve is double sloped than an inverse linear demand curve

equating MR=Qs

850-2Q=250+4Q

6Q=600

Q=100

P=850-Q

P=850-100

P=$750

the price of cartel is $750

===============

the market is in equilibrium at Qd=Qs

850-Q=250+4Q

5Q=600

Q=120

P=850-120

P=730

==============

the increase in price =750-730=20

the price increases by $20

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