Consider Figure 6.4 in your textbook, as indicated below. If the equation for the demand curve were P = 10 - Q and MC constant at 4,
(a) Find the competitive level of output and price.
(b) Find the marginal revenue and derive the rent seeking cartel's of output and price.
(c) How much rent is being raised?
(a) Set Demand = Supply, 10 - Q = 4, then Q* = 6 and P* = 4
(b) TR = P * Q = (10 - Q) * Q, MR = dTR/dQ = 10 - 2Q, then set MR = MC, 10 - 2Q = 4, Q c = 3 and P c = 7
(c) Total rent = (P c - P*) × Q c = 3 × 3 = 9.
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