Consider a hypothetical demand schedule for monosodium

glutamate $($MSG$).$ Suppose that Ajinomoto holds $50\%$ of the

market, Jiali holds $30\%$ of the market, and Quingdao holds

$20\%$ of the market.

Suppose the three firms agree to form a cartel to fix

production of monosodium glutamate. Assume marginal cost

equals zero, and the output is split equally across the firms.

What quantity maximizes the cartel's profit?

$110$ million pounds

$300$ million pounds

$20$ million pounds

$90$ million pounds

Price of MSG

$($$ per pound$)$

$$8$

$$7$

$$6$

$$5$

$$4$

$$3$

$$2$

$$1$

$$0$

Quantity of MSC

$($millions of I

$0$

$20$

$30$

$40$

$60$

$90$

$110$

$180$

$300$

Suppose Ajinomoto's marginal cost remains equal to zero, but

for Jiali and Quingdao, marginal costs rise above zero.

How would this affect the incentive of Ajinimoto to

act noncooperatively and change its output?

Ajinomoto will not have an incentive to change

its output.

Ajinomoto will have an incentive to increase its

output of MSG$.$

Ajinomoto will have an incentive to decrease its

output of MSG$.$