Consider a cartel consisting of N identical firms in an industry.

a) Assume the cartel functions perfectly. How will the market demand elasticity, marginal cost, and price be related?

b) How will the demand elasticity of a single firm relate to the market demand elasticity if the remaining firms react to changes in this firm's strategy by maintaining their current output? Explain.

c) How will the demand elasticity of any given firm relate to the market demand elasticity if the remaining firms very quickly react to changes in this firm's strategy by maintaining their market shares? Does your answer depend upon whether firms' strategies are playing price or playing quantity? Explain.

d) Will either of the two previous strategies deter firms from cheating on the cartel?