Question
Suppose there are 6 firms in a market.The Market Demand curve is given by P = 210 -3Q, where Q is the Market output.The Marginal
Suppose there are 6 firms in a market.The Market Demand curve is given by P = 210 -3Q, where Q is the Market output.The Marginal Cost for each firm is given by MC = 30.There are no fixed costs.Suppose the firms agree to form a cartel and maximize their joint profits.They agree to equally split the total output between them.
a) (4 points) How much output will EACH firm produce?
b) (6 points) Suppose Firm 1 decides to cheat on the agreement and maximize their own profit.Assuming the other five firms stick to the agreement and each produce the quantity given in a), what is the residual demand facing Firm 1 (write the equation)?
c) (4 points) How much output should Firm 1 produce to maximize its own profit?
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