Solve this problem set please

1. Oligopoly. Suppose there are two firms in a market and these two firms agree to form a cartel and divide up the market evenly. The two firms know the following: Market Demand: P = 2000-20 Marginal Cost: MC = 400 Fixed Cost: FC = 0 (a) What is the profit maximizing quantity and price for the cartel? Explain your answer and provide a graph of this market to illustrate your answer. (b) What are the industry profits given your answer in (a)? Show your work. (c) What is the level of production for each firm if both firms adhere to the cartel agreement? What are the profits for each firm? Explain your answer. (d) Suppose one of the firms decides to cheat on the cartel agreement and sell the product for $1100 per unit. How many units can this firm sell at this price and what will be its profits when it follows this pricing strategy? Assume that the other firm does not drop its price and consumers know all prices, so the other firm sells zero units. (e) Suppose that one of the firms drops its price as described in (d), but now the other firm matches this price decrease. If the two firms continue to split the market evenly, what will the profit for each firm equal now that both firms are selling the good for $1100 per unit? Explain your answer. (f) Make a payoff matrix for these two firms with each firm having a choice of charging the profit maximizing price (see (a)) or the "cheating on cartel" price of $1100. Put Firm A on the left-hand side of the payoff matrix and Firm B at the top of the matrix. (g) Does each firm have a dominant strategy? Explain your answer. (h) What do you predict will be the outcome of this game? Explain your answer. (i) If you apply the above logic many times to successively lower prices (e.g. $1050, $1000, ...), what will the price eventually be?