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Suppose there are 3 firms in the market for diamonds and they decide to form a cartel. Since each firm owns a mercenary force capable
Suppose there are 3 firms in the market for diamonds and they decide to form a cartel. Since each firm owns a mercenary force capable of punishing the other firms for breaking cartel rules, no firm has an incentive to deviate from the chosen production of the cartel. The demand for diamonds is given by P = 50 3Q and the marginal cost for all three firms is 2. Assuming production would be split evenly between the three firms, what is the equilibrium profit for firm 1?
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