Consider an industry that consists of 4 firms, all competing over the same market, given by the following demand equation: P=80-3Q All firms have the same Total Cost Function, given by: TC₁=10q,+2q Suppose the firms decide to collude and voluntarily restrict output and raise price, in order to increase profits. a) What price will be charged by the members of the cartel? Assume the head of the cartel is fair and distributes output q, equally among the 4 firms (since they have identical costs). b)What is the output of each individual firm? c) What is each individual firm's profit? We know that there is a built-in incentive for cartel members to cheat on the cartel. If, as a result, the cartel breaks down:
Consider an industry that consists of 4 firms, all competing over the same market, given by the following
Assume the head of the cartel is fair and distributes output q, equally among the 4 firms (since they have identical costs). b)What is the output of each individual firm?
c) What is each individual firm's profit?
We know that there is a built-in incentive for cartel members to cheat on the cartel. If, as a result, the cartel breaks down:
d) What price will be charged in the market?
e) Assuming each firm captures an equal share of the market, what now is each firm's output, q?
f) What now is individual firm profit?
g) Illustrate your answer
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