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A lithium cartel’s curve is given by P = 2400 – 40Q. Each member’s cost of supplying lithium is AC = MC = $400.

a) The governments of lithium (a scarce mineral in high demand) purchasing nations get together and decide to break the cartel. First they ask you to calculate the profile of market welfare for the market. You calculate the dead-weight loss, consumer surplus, and total welfare (profit plus consumer surplus) of the lithium market and report to them.

b) They then ask you to calculate the effects of adding a $400 tax that will be added to AC and MC of the lithium cartel. They do not expect a change in the market demand function. Calculate the percentage of consumer welfare of the total welfare with the tax and explain how market welfare changes.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M91228493

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