1. Assume that the demand curve for milk is given by Q = 100 - 10P, where P is the price per gallon, and Q is the quantity demanded per year. The supply curve is horizontal at a marginal cost of $2.
a) Assuming that the market is competitive, what is the price per gallon of milk and the number of gallons sold?
b) The dairy farmers lobby members of Congress, and get permission to form and maintain a dairy cartel (Yes, cartels like this actually exist in the dairy industry). If a cartel is formed, what is the price of milk and how many gallons are sold?
c) What is the deadweight loss from the cartel?
d) Suppose the dairy farmers had to hire lawyers to lobby and to maintain the cartel. How does this fact affect the deadweight loss you calculated in part c?