4. Do you expect firms to enter the running shoes market or exit from that market in the long run? Explain your answer.

Use the following information to work Problems 5 and 6.

Isolated Island has two taxi companies, one owned by Ann and the other owned by Zack. Figure 2 shows the demand curve for taxi rides, D, and the cost curves of one of the firms. Suppose that Ann and Zack have two strategies: Collude, fix the monopoly price, and limit the number of rides, or break the collusion, cut the price, and produce more rides.