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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

Consider the curve in the figure below, which shows the market demand. marginal cost, and marginal revenue curve for firms in an oligopolistic industry. In this example, we assume firms have zero fixed costs.

Chapter 10, Problem 3SCQ, Consider the curve in the figure below, which shows the market demand. marginal cost, and marginal

a. Suppose the firms collude to form a cartel. What price will the cartel charge? What quantity will the cartel supply? How much profit will the cartel earn?

b. Suppose now that the cane] breaks up and the oligopolistic firms compete as vigorously as possible by cutting the price and increasing sales. What will be the industry quantity and price? What will be the collective profits of all firms in the industry?

C. Compare the equilibrium price, quantity, and profit for the cartel and cutthroat competition outcomes.

(a)

To determine

To find: With the help of the given diagram, the price, quantity supplied and profit of the company if the firms form a cartel.

Explanation

If the firms form a cartel, they will monopolize their prices and quantity supplied. They will produce the output where MR=MC. If the fixed costs are zero then, MC and Average cost (AC) will be equal. MC curve is given horizontal so AC curve will also be horizontal...

(b)

To determine

If the cartel breaks up and the firms individually compete. What will be new Industry price, quantity and profits.

(c)

To determine

Compare the old and new Industry price, quantity and profits.

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