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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Refer to the accompanying figure. Because of a cartel agreement, a firm has been assigned a production quota of q2 units. The cartel price is P2. What do the firm’s profits equal if it adheres to the cartel agreement? What do the firm’s profits equal if it breaks the cartel agreement and produces q3?

images

To determine

Determine the firm’s profit if it follows the cartel agreement and if it breaks the cartel agreement.

Explanation

Figure-1 shows the cartel agreement, a firm’s production quota as follows:

In Figure-1, the horizontal axis measures the quantity and the vertical axis measures the price.

According to Figure-1, Q1 represents the initial equilibrium quantity produced by the firm at price P1...

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