Use the following to answer question:
-(Table: Demand Schedule of Gadgets)Use Table: Demand Schedule of Gadgets.The market for gadgets consists of two producers,Margaret and Ray.Each firm can produce gadgets with no marginal cost or fixed cost.Suppose that these two producers have formed a cartel and are maximizing total industry profits and splitting the production of output evenly between themselves.If Margaret decides to cheat on the agreement and sell 100 more gadgets,how many gadgets will she sell?
A)0
B)250
C)350
D)600

Question

Use the following to answer question: 
-(Table: Demand Schedule of Gadgets)Use Table: Demand Schedule of Gadgets.The market for gadgets consists of two producers,Margaret and Ray.Each firm can produce gadgets with no marginal cost or fixed cost.Suppose that these two producers have formed a cartel and are maximizing total industry profits and splitting the production of output evenly between themselves.If Margaret decides to cheat on the agreement and sell 100 more gadgets,how many gadgets will she sell?
A)0 
B)250 
C)350 
D)600

Quizplus · Accepted Answer

According to the table, the market demand for gadgets at a price of $50 is 500. If both producers split the production evenly, each one will produce 250 gadgets. If Margaret decides to sell 100 more gadgets, the market supply will increase to 600 (250 from Ray + 350 from Margaret). At a price of $50, the market demand is still only 500, so the market price will need to adjust downwards to clear the market. This means that both producers will end up selling fewer gadgets than before, but Margaret will still sell an additional 100 gadgets compared to her previous production level of 250. Therefore, Margaret will end up selling 350 gadgets in total.

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