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Pricing and Output Decisions: Supply and Demand

The Chilean Fruit Growers Association estimates the following market supply and demand curves for fruit:

QS = 125,000P

QD = 200,000 - 50,000P

Where Q is the daily output in pounds and P is the price per pound.

a) Determine the price and quantity that would result under competitive conditions.
b) The Chilean Fruit Growers are trying to organize a cartel among growers in their region. Assuming that all growers participate in the cartel, what price and quantity should the cartel set?
c) The Growers Association would like to give growers and idea of the benefits available from the cartel. How significant are the advantages from the cartel?

Solution Preview

a) Determine the price and quantity that would result under competitive conditions.

QS=125000P
QD=200000-50000P

Put QS=QD for equilibrium
125000P=200000-50000P
175000P=200000
P=200000/175000=$1.14285714

QS=125000*1.14285714=142857.14
QD=200000-50000*1.14285714=142857.14

Equilibrium price=$1.14
Equilibrium quantity=142857 pound

b) The Chilean Fruit Growers are trying to organize a cartel among growers in their region. Assuming that all growers participate in the cartel, what price and quantity ...

Solution Summary

Solution depicts the steps to determine equilibrium price and quantity in the given case.

$2.19