Determining the cartel equilibrium

Reference no: EM13967421

Cartel Equilibrium

The Hand Tool Manufacturing Industry Trade Association recently published the following estimates of demand and supply relations for hammers:

QD = 60,000 - 10,000P (Demand)

QS = 20,000P (Supply)

A. Calculate the perfectly competitive industry equilibrium price/output combination.

B. Now assume that the industry output is organized into a cartel. Calculate the industry price/output combination that will maximize profits for cartel members. (Hint: As a cartel, industry MR = $6 - $0.0002Q.)

C. Compare your answers to parts A and B. Calculate the price/output effects of the cartel.

Reference no: EM13967421

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