ECO101H1 Lecture 9: Monopoly continued
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Eco101 lecture 9 monopoly cont. Creating a cartel: hypothetical: perfectly competitive corn industry is originally in long- run (lr) equilibrium at point a (in industry diagram). The industry"s demand schedule is p = 110 . 0. 1q [q in metric tons]. Then the corn producers group (cpg) is allowed to set a quota system. Well, let"s find quantity first. So, there are 200 firms in the industry because q = 1000 and each firm. =200 firms produces 5 metric tons so n : suppose quota system successfully included, thus creating effective cartel: 800 because 80% of equilibrium (1000) = because p = 110 0. 1(800) = 30. 4 because: new point b is result of quota system (shown in both industry & firm diagrams) Point c on industry diagram represents this. There"s a surplus (srs > d) and so price drops. Prevent members from exceeding their quota (no rebels: let"s say that the cpg accepts your suggestion and it works!!
