The following diagrams illustrate an industry under oligopoly consisting of 10 equal-sized firms, and a particular firm in that industry. Each of the firms produces an identical product. (a) Assuming the firms form a cartel, what price will the cartel choose if it wishes to maximise overall profits for the cartel? (b) What total output must the cartel produce in order to maintain this price? (c) To what output will an individual firm be restricted if this price is to be maintained? Assume that all firms are permitted to produce the same level of output.
The following diagrams illustrate an industry under oligopoly consisting of 10 equal-sized firms, and a particular firm in that industry. Each of the firms produces an identical product.
(a) Assuming the firms form a cartel, what
(b) What total output must the cartel produce in order to maintain this price?
(c) To what output will an individual firm be restricted if this price is to be maintained? Assume that all firms are permitted to produce the same level of output.
(d) If the other firms stick to this output, how much would an individual firm be tempted to produce if it wished to maximise its own profit at the agreed price?
(e) If it undercut the cartel price, what price and output would maximise its profit (assuming the other members did not retaliate)?
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