Final Answers

Final Answers - The Colorado College Department of...

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1 The Colorado College Department of Economics and Business Block 5: Principles of Microeconomics Block 5 Econ 151 Final answers 1) (a) (i) Price per bushel Quantity (in bushels) Total Revenue 12 0 0 11 5 55 10 10 100 9 15 135 8 20 160 7 25 175 6 30 180 5 35 175 4 40 160 3 45 135 2 50 100 1 55 55 0 60 0 (ii) In a competitive market P=MC =0 (in this case). So P=$0 and Q=60. (Here TR, TC and profit are all zero for the cartel) (iii) When the two firms form a cartel they behave like a monopolist. The profit maximization occurs at P=$6. So, P=$6, Q=30 for the market. The profit for the cartel as a whole is $6x30 = $180 . Each firm produces 15 units at $6 and receives a profit of $90 each. [Another way of looking at this, for output beyond 30 units, MR < 0 and MC = 0, so the cartel will only produce 30 units at P=$6] (iv) The firm which cheats produces 20 units, so the cartel as a whole will produce 35 units at price $5 . The firm which cheats earns a profit of 20x$5 =$100 , the other firm earns $5x15 =$75 . (v) If both firms cheat to produce 5 units more then total production is 40 units. Each firm then produces 15+ 5 = 20 units each at $4 and earns a profit of 20x$4 = $80 . (b) With Dunlop being the low cost producer it is the price leader. It sets the price and Wilson accepts this price and quantity. Both firms produce and sell Q 1 at price P 1 .
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Final Answers - The Colorado College Department of...

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