In a perfect competitive market, industry demand is P = 850 – 2Q, and industry supply is P = 250 + 4Q (supply is the sum of the marginal cost curves of the firms in the industry). Assume that all the firms collude to form a single monopoly firm. There is no change in the demand or cost conditions of the industry. What are the economic effects (price and quantity) of such a change in industry structure?

To analyze the economic effects of the change in industry structure from perfect competition to a monopoly, we need to compare the equilibrium price and quantity under both scenarios.

In a perfectly competitive market, the industry demand and supply curves intersect to determine the equilibrium price and quantity. Equating the industry demand and supply equations, we have:

850 - 2Q = 250 + 4Q

By rearranging the equation and solving for Q, we can find the quantity:

6Q = 600
Q = 100

Substituting the value of Q back into the industry demand equation, we can find the equilibrium price:

P = 850 - 2(100)
P = 850 - 200
P = 650

Therefore, in a perfectly competitive market, the equilibrium quantity is 100 units and the equilibrium price is $650.

Now let's consider the scenario of a monopoly. In a monopoly, there is a single firm controlling the entire market. The firm's marginal revenue (MR) curve will be different from the demand curve because it considers the effect on revenue of selling one additional unit.

To find the monopoly firm's marginal revenue curve, we need to differentiate the total revenue function with respect to quantity (Q). The total revenue function is given by the product of price (P) and quantity (Q):

TR = P * Q

Differentiating TR with respect to Q, we get:

MR = dTR/dQ = P + Q(dP/dQ)

Now, we need to substitute the demand equation (P = 850 - 2Q) into the MR equation:

MR = (850 - 2Q) + Q(-2)
MR = 850 - 2Q - 2Q
MR = 850 - 4Q

To find the monopolist's profit-maximizing level of output, we need to set MR equal to marginal cost (MC). Since the supply curve represents the marginal cost curves of individual firms in the industry, we can use it as the monopolist's marginal cost curve.

Setting MR equal to MC, we have:

850 - 4Q = 250 + 4Q

By rearranging the equation and solving for Q, we can find the monopolist's profit-maximizing quantity:

8Q = 600
Q = 75

Substituting this value into the demand equation, we can find the monopolist's equilibrium price:

P = 850 - 2(75)
P = 850 - 150
P = 700

Therefore, under monopoly, the equilibrium quantity is 75 units and the equilibrium price is $700.

Comparing the results, we see that the monopoly firm produces a lower quantity (75 units) and charges a higher price ($700) compared to the perfect competition scenario (100 units and $650 price).

In summary, the change in industry structure from perfect competition to a monopoly leads to a reduction in output and an increase in price. The monopolist's market power allows it to restrict the quantity supplied and charge a higher price to maximize its profits.