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(a) If the families were to interact only once (compete on one day only), what price would you expect to prevail for a gram of

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(a) If the families were to interact only once (compete on one day only), what price would you expect to prevail for a gram of cocaine in New Jersey? Explain your answer. [10 marks] (b) Compute the price that would be charged for cocaine if the market were a monopoly. How many grams of cocaine would the monopolist sell daily and what profits would it make? [10 marks] (c) Now suppose the five families interact indefinitely. They wish to collude to price cocaine at the monopoly level. Suppose families have a discount factor of 8 = 0.7. There is an understanding that if any family undercuts, the rest will punish by reverting to the price set in (a) forever. Is collusion sustainable amongst the 5 families? What is the maximum number of families that could sustain collusion? [10 marks]

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