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,agreed to split production of output evenly,and are maximizing total industry profits.If Margaret decides to cheat on the agreement and sell 100 more gadgets,Margaret's price effect will be a(n)_____ in profit of _____.
A)decrease;$400
B)increase;$400
C)increase;$250
D)decrease;$250

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,agreed to split production of output evenly,and are maximizing total industry profits.If Margaret decides to cheat on the agreement and sell 100 more gadgets,Margaret's price effect will be a(n)_____ in profit of _____.
A)decrease;$400 
B)increase;$400 
C)increase;$250 
D)decrease;$250

Quizplus · Accepted Answer

Margaret's price effect refers to how her profits change due to the impact of her additional sales on the market price. Cheating on the cartel agreement by increasing her output would likely lead to a decrease in the market price for gadgets, given the law of demand (as quantity supplied increases, price tends to decrease). This decrease in price would reduce the revenue per gadget for both her additional gadgets and the gadgets she was already selling, leading to a decrease in profit. The specific amount ($250) would depend on the details of the demand schedule and the pricing before and after the increase in supply.

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