the behavior of a cartel like a monopolist, using the revenue and cost curves. Concept Introduction : Cartel is a group of firms that agree to coordinate their production and pricing decisions to reap monopoly profits.

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Price The graph below depicts the market demand curve faced by a hypothetical cartel operating in the US. Use the graph to highlight the area that represents the profits earned by the cartel. 100 90 80 70 60 50 40 30 20 10 0 0 D B Profit C A Marginal cost average cost Market demand Marginal revenue 1000 2000 3000 4000 5000 6000 7000 8000 900010000 Quantity If the US government decides to break up the cartel. Which of the following pieces of legislation could the cartel be prosecuted under? The Sherman Antitrust Act The First Amendment The Dodd Frank Act The Glass Stegall Act

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Chapter 10, Problem 8P

To determine

the behavior of a cartel like a monopolist, using the revenue and cost curves.

Concept Introduction:

Cartel is a group of firms that agree to coordinate their production and pricing decisions to reap monopoly profits.

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Price The graph below depicts the market demand curve faced by a hypothetical cartel operating in the US. Use the graph to highlight the area that represents the profits earned by the cartel. 100 90 80 70 60 50 40 30 20 10 0 0 D B Profit C A Marginal cost average cost Market demand Marginal revenue 1000 2000 3000 4000 5000 6000 7000 8000 900010000 Quantity If the US government decides to break up the cartel. Which of the following pieces of legislation could the cartel be prosecuted under? The Sherman Antitrust Act The First Amendment The Dodd Frank Act The Glass Stegall Act

3. Breakdown of a cartel agreement Consider a town in which only two residents, Daniel and Gabrielle, own wells that produce water safe for drinking. Daniel and Gabrielle can pump and sell as much water as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water. Price (Dollars per gallon) Quantity Demanded Total Revenue (Gallons of water) (Dollars) 4.20 0 0 3.85 40 $154.00 3.50 80 $280.00 3.15 120 $378.00 2.80 160 $448.00 2.45 200 $490.00 2.10 240 $504.00 1.75 280 $490.00 1.40 320 $448.00 1.05 360 $378.00 0.70 400 $280.00 0.35 440 $154.00 0 480 0 Suppose Daniel and Gabrielle form a cartel and behave as a monopolist. The profit-maximizing price is $ output is per gallon, and the total gallons. As part of their cartel agreement, Daniel and Gabrielle agree to split production equally. Therefore, Daniel's profit is and Gabrielle's profit is $

1-In the table below are the demand and cost data for ECON Drugs, a pure monopolist. Complete the table and columns for total revenue, marginal revenue, and marginal cost. What are the answers to these three questions: (a) At what production output will Econ Drugs produce? (b) What price will ECON Drugs charge? (c) What total profit will the Econ Drugs receive at the profit-maximizing level of output? Quantity Price Total revenue Marginal revenue Total cost Marginal cost 0 $34 $_____ $ 20 1 32 _____ $_____ 36 $_____ 2 30 _____ _____ 46 _____ 3 28 _____ _____ 50 _____ 4 26 _____ _____ 54 _____ 5 24 _____ _____ 56 _____ 6 22 _____ _____ 64 _____ 7 20 _____ _____ 80 _____ 8 18 _____ _____ 100 _____ 9 16 _____ _____ 128 _____ 10 14 _____ _____ 160 ___