Let’s look at the market for Gala apples. Assume there are…
Let’s look at the market for Gala apples. Assume there are 300 producers and that MC=AC=$.40 per pound. In a competitive market, price will be driven down to marginal cost. Let’s assume that when P=MC, each apple grower produces 2 million pounds of apples for a total market production of 600 million pounds. Now imagine that the apple growers form a cartel and each agrees to cut production to 1 million pound, which drives the price of apples up to $.70 per pound. If a single apple grower broke from the cartel and produced an extra million pounds of apples, how much additional profit (approximately) will this apple grower make?
Read Details