Handy Manufacturing Industry Trade Association recently published the following estimates of Demand and Supply relations for hammers
QD = 60,000 - 10,000P (Demand)
QS = 20,000P (Supply)
A. Graph both the Demand and Supply functions, calculating the intercepts for both functions. (Since Supply goes through the origin, there is only one intercept. For a second point for Supply, use the quantity calculated for the quantity intercept of the Demand curve.)
B. Calculate the perfectly competitive industry equilibrium price/output combination.
Now assume that the industry output is organized into a cartel. Calculate the industry price/output combination that will maximize profits for cartel members. (Hint: To do this, convert aggregate [market] supply back to aggregate marginal cost, (MC = P). Then from inverted Demand calculate the MR function. Then use profit maximizing condition for cartel, namely: MC = MR.
C. Table and compare your answers to parts A and B. Calculate the price/output effects of the cartel.