Principles of Economics, 7th Edition (MindTap Course List)
Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
Question
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Chapter 17, Problem 1QR
To determine

Setting price and quantity under cartel.

Expert Solution & Answer
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Explanation of Solution

The number of firms acting just like a union is referred to as cartel. When a cartel is formed, the market is just like a monopoly and the member firms will agree on the monopoly outcome because that outcome maximizes the total profit of each member firm. The member firms in the cartel set the quantity demand, where the marginal revenue is equal to the marginal cost; they fix the price equivalent to that point in the demand curve.

Economics Concept Introduction

Concept introduction:

Cartel: Cartel refers to the agreement among the firms to share the market between themselves and behaving like a single firm in order to maintain the higher price and restrict the new entrants.

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Suppose a group of sellers could form a cartel, what quantity and price would they try to set?
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