Table 17-6. The table shows the demand schedule for a particular product.

-Refer to Table 17-6.Suppose the market for this product is served by two firms that have formed a cartel.What price will the cartel charge in this market if the marginal cost of production is $4?
A) $6
B) $8
C) $10
D) $12

Question

Table 17-6. The table shows the demand schedule for a particular product.
 
-Refer to Table 17-6.Suppose the market for this product is served by two firms that have formed a cartel.What price will the cartel charge in this market if the marginal cost of production is $4?
A) $6 
B) $8 
C) $10 
D) $12

Quizplus · Accepted Answer

To maximize profits, the cartel will want to produce where marginal revenue (MR) equals marginal cost (MC). From the table, we can see that the market demand at a price of $10 is 10 units, and the total revenue for the cartel at that price is $100 (10 units x $10 per unit). If the marginal cost of production is $4, the cartel will produce 8 units (where MR = MC) and charge a price of $10. If the cartel charged any higher price, the quantity demanded would drop and they would earn less revenue. Therefore, the correct answer is (C) $10.