Suppose there are 7 firms in an industry. The Market Demand Curve is given by P =
Question:
Suppose there are 7 firms in an industry. The Market Demand Curve is given by P = 258 – 3Q. Each firm has MC = 6 and FC = 0. Suppose the firms form a Cartel and agree to maximize the joint profits, split the profit-maximizing output equally and split the profits equally.
A) How much output will each firm produce?
qi = _________________ i = 1,7
B) How much profit will each firm make?
PI = _________________ i = 1,7
C) Now suppose that Firm 1 decides to cheat on the agreement. Assuming the other 6 firms each produce the quantity given in A), write the equation for the residual demand that faces Firm 1.
QR = _________________________
D) If Firm 1 expects Firm 2 to produce the amount of output in A), how much output should Firm 1 produce to maximize their profit?