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suppose the rms 1 and 2 could agree that for every unit of output produced by rm 1, the rm mustpayataxt1 torm2,andthatrm2mustsimilarlypayataxt2 torm1foreveryunitof output produce

suppose the rms 1 and 2 could agree that for every unit of output produced by rm 1, the rm mustpayataxt1 torm2,andthatrm2mustsimilarlypayataxt2 torm1foreveryunitof output produce by rm 2. Explain how these taxes can increase the prots of both rms. Assuming that t1 = t2 = t, nd the equilibrium quantities with the taxes. What is the tax level that maximizes the firms profits

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