Suppose that a small nation has three cellular telephone providers with a linear monthly market demand for cell phone service:

Q = 900,000 - 900P The demand can be rewritten as P = 1,000 - 0.0011Q The rewritten demand curve has as a vertical intercept of 1,000 and a slope of -0.0011.

Because the demand curve is linear, as Chapter 6 pointed out, the marginal revenue curve has the same vertical intercept and a slope twice that of the demand curve:

MR = 1,000 - 0.0022Q Suppose that each firm’s marginal cost (MC) and average total cost (ATC) curves are horizontal at $20 per month, so the market’s competitive supply curve is also horizontal at a price of $20.

a. If the firms compete, what are the price, quantity, and total economic profit made by all of the firms combined?

b. If the firms’ managers form a price-fixing cartel that maximizes the firms’ total profit, what are the quantity, price, and total economic profit made by all of the firms combined?