1.7. Consider the demand schedule for Silly Bandz below. Assume that the marginal cost of producing a pack of Silly Bandz is a constant $0.50.

Price

($/pack of Silly Bandz)

$3.50

$3.00

$2.50

$2.00

$1 .50

$1.00 Quantity Demanded

(packs of Silly Bandz)

0 12 24 36 48 60 Cartels, Oligopolies, and Monopolistic Competition • CHAPTER 1 5 • 299

a. How many packs of Silly Bandz would be produced under a Silly Bandz monopoly?

b. If instead of a monopoly, a two-firm cartel controlled the Silly Bandz market, how many packs of Silly Bandz would each firm want to produce in order to maximize industry profits?

c. Determine whether it would be possible for one of the two firms in the cartel to earn higher profits by producing more than the industry profit-maximizing quantity you calculated in part b above.