Suppose two firms compete in quantities (Cournot) in a market in which demand is described by: P=260-2Q. each firm incurs no fixed cost but has a marginal cost of 20.

Now imagine they collude to produce the monopoly output.

Suppose that after the cartel is established, firm 1 decides to cheat on the collusion, assuming the other firm will continue to produce its half of the monopoly output.

What will be firm 1's profit if firm 2 continues producing the monopoly outcome?

a. 4500 b. 5200 c.4200 d. 4050

Should firm 2 respond and increas their quantity?

Yes or No