Use the Following to Answer Question

question 169

Essay

Use the following to answer question:
-(Table: Demand Schedule for Gadgets) Look at the table The Market for Gadgets. Two producers, Margaret and Ray, dominate the market. Each firm can produce gadgets at marginal costs of approximately zero and has no fixed cost.
A) If these firms form a cartel to maximize joint profits, what output level will be produced and at what price? If the output is shared evenly, how much profit will each firm earn?
B) Suppose that Margaret decides to increase production by 100 gadgets and Ray leaves output constant. What will be the new market price and output? How much profit will each firm earn?

• A) If these firms form a cartel to maximize joint profits, what output level will be produced and at what price? If the output is shared evenly, how much profit will each firm earn?
• B) Suppose that Margaret decides to increase production by 100 gadgets and Ray leaves output constant. What will be the new market price and output? How much profit will each firm earn?

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Definitions:

Established Corporations

Corporations that have been in existence for a considerable period and have a stable position in the market, often characterized by a wide customer base and significant assets.

Interest-Rate Cost-of-Funds Curve

A graphical representation showing the relationship between the interest rates on loans and the total amount of funds loaned by banks.

MB = MC Decision Framework

A decision-making framework where optimal resource allocation occurs when marginal benefits (MB) equal marginal costs (MC).

Marginal Cost Element

An increase in total cost that results from producing one additional unit of a good or service.