Three firms agree to operate as a monopoly and charge the monopoly price of $40 for their product and (jointly)produce the monopoly quantity of 25,000 units. If the competitive price for the product is $10, under the Clayton Act these three firms face treble damages of_______ .
A)$1,000,000
B)$750,000
C)$2,250,000
D)$3,000,000

Question

Quizplus · Accepted Answer

Treble damages refer to a penalty that is three times the amount of damages incurred. To calculate the damages incurred, we need to find the difference between the monopoly price and the competitive price, and multiply that by the quantity sold.

Under a competitive market, the price would have been $10, and the quantity sold would have been higher than 25,000 units. But the monopoly agreement between the three firms resulted in a higher price of $40 and a lower quantity of 25,000 units.

The damages incurred due to the higher price can be calculated as follows:

($40 - $10) x 25,000 = $750,000

Since the Clayton Act imposes treble damages, the final penalty imposed on the three firms would be three times $750,000, which is $2,250,000. Therefore, the correct answer is C.

Three Firms Agree to Operate as a Monopoly and Charge