Question

An individual firm in a cartel has a marginal cost function given by MC = 8...

An individual firm in a cartel has a marginal cost function given by MC = 8 + 2q . The firm agrees to quota of 3 units as part of the collusion. The competitive price of the good would be $24.8. The cartel manages to drive the price up to $41 Calculate the producer surplus for the cartel, when it produces the quota.

Homework Answers

Answer #1

MC = 8 + 2q

At q = 3

MC = 8 + 2(3) = $14

Prpducer surplus = [($41 - $14) * 3] + 0.5[($14 - $8) *3]

                            = 81 + 9

                            = $90

Thus, the producer surplus for the cartel is $90.

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