If an industry consisting of two firms produces a total of 12 units, the market price is $10. If 13 units are produced, the pric

Question

3 years ago

10

If an industry consisting of two firms produces a total of 12 units, the market price is $10. If 13 units are produced, the pric

e falls to $9. Suppose the two firms form a cartel and agree to produce 6 units each. If one firm cheats and produces 7 units, the cheating firm's revenue rises by _____ and the noncheating firm's revenue falls by _____.
$3; $12

$6; $12

$6; $6

$3; $6

Business

1 answer:

Olenka [21] · Answer 1 · 2022-07-03T15:48:19+03:00

Answer: $3; $6

The two firms formed a cartel which means they agree to produce same with the purpose of maintaining prices at a high level and restricting competition. In the case of two firms who agree on producing 6 units but one cheat, this will be the effect:

At 6 units each, and a market price of $10, each firm will have a gross sale of $60. If one cheats and produced 7, the market price will fall to $9, resulting to $63 (7*9) and a gain of $3. The noncheating firm will acquire a sale of $54 (6*9) only or a loss of $6. The answer is $3; $6.