Consider a duopoly that faces a market demand = 4,500 - 4. Each firm has one manufacturing plant and each firm i has a cost function ( ) = 2, where

is the output of firm and is the total output. The two firms form a cartel and

arrange to split total industry profits equally. Under this cartel arrangement, they will maximise joint profits if

1. they produce a total of 500 units, no matter which firm produces them.
2. each firm produces 250 units in its plant.
3. they each produce a total of 562.50 units.
4. they shut down one of the two plants, having the other operate as a
5. monopoly and produce 450 units and then splitting the profits.