Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.

Get a Professional Answer

Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.

100% Satisfaction Guarantee

Rate the answer you receive.

Ask Steve Your Own Question

Steve, Tutor

Category: Homework

Satisfied Customers: 25

Experience: Currently in College, act of 29

21095189

Type Your Homework Question Here...

Steve is online now

Economics question- Centralized Cartel

Customer Question

Firms A and B operate as a centralized cartel . Their marginal cost functions are defined below: MCa = 25Qa MCb=6.25Qb The firms face the following market demand curve: Q=1000-0.10P Determine the market price that the firms should charge and the quantity of output that should be produced by each firm

Hey DeliaLee, thanks for the opportunity to answer your question.

There are a few rules we need to know to be able to solve this problem. We need to know that a cartel faces the same type of profit maximization trends that a monopoly faces. Second, we need to know that marginal revenue bisects the horizontal distance between the y axis and the demand (that means it has twice as steep of a slope).

Since companies A and B are working together, their marginal cost is combined. This creates an MC function of MC = 31.25q.

To find marginal revenue, we double the slope of the demand curve. So MR = 1000 -.05p.

To mathematically find where they intersect, we need to set them equal to each other. This means we need to change the MR terms so Q is the variable.

Q = 1000 - .1p

Q/.1 = 1000/.1 - p

p = 10000 - Q/.1 (or p = 10000 - 10q)

Then we double the slop to get MR = 10000 - 10q

So we need to find where they intersect to find the best price and output. We will need to set MR = MC to find what Q equals.

10,000 - 10q = 31.25q

10,000 = 41.25q

q = 242 Units

Now that we know what the combined quanitity is, we can find the best price.

We use the demand formula and plug in Q to find P (remember price is set by demand, so we use this formula).

p = 10,000 - 10(242)

p = 10,000 - 2420

p = $7580

So there you go. These companies should produce 242 units combined and set the price at $7,580.

Hope this helps. If it does, and you have the time, I would greatly appreciate some good feedback. Thanks.

if the demand line is p = 10000 - 10q and the MR line has half the slope shouldn't it be MR=10000-20q? When I use either MR I my answer has decimal places.

The question also is asking how much each firm should produce. To find that I was going to set MCa = 25Qa and also for MCb.

THIS ANSWER IS LOCKED! You can view this answer by clicking here to Register or Login and paying $3. If you've already paid for this answer, simply Login.

the problem gave two MC's, the marginal cost was 25Qb for firm a, but we were also given MCb = 6.25Qb

Share this conversation

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.

JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.

Web sites like justanswer.com/legal ...leave nothing to chance.

Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.

Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.

I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C.Freshfield, Liverpool, UK

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.GPHesperia, CA

I couldn't be more satisfied! This is the site I will always come to when I need a second opinion.JustinKernersville, NC

Just let me say that this encounter has been entirely professional and most helpful. I liked that I could ask additional questions and get answered in a very short turn around. EstherWoodstock, NY

Thank you so much for taking your time and knowledge to support my concerns. Not only did you answer my questions, you even took it a step further with replying with more pertinent information I needed to know. RobinElkton, Maryland

He answered my question promptly and gave me accurate, detailed information. If all of your experts are half as good, you have a great thing going here.DianeDallas, TX