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Unformatted text preview: P = 16 – 2(2 – 1/3 q1) – 2(2 – 1/3 q1) – 2q1 P = 8 – 2/3 q1 MR = 8 – 4/3 q Set MC = MR 4/3 q = 8 – 4/3 q q1 = 3 q2 = q3 = 1 Q(aggregated) = (3+1+1) = 5 P = 16 – 2(5) = $6 Profit firm 1 = (3*6) – 2/3 (3)^2 = $12 Profit firm 2,3 = (1*6) – 4(1) = $2 Stable Cartel For stable cartel, 3 firms act as one big monopolist and will allocate the quantity produced based on their MC productions. So equate your MC1 = MC2 = MC3 MC1 = 4/3q MC2 = 4 MC3 = 4 Since firm 1 is based on a variable marginal cost and firm 2 and firm 3 are based on a constant cost, we can’t aggregate the MC’s Therefore, 4/3 q1 = 4 = 4 solving for q1 q1 = 3 Therefore firm one will produce the first 3 units of output since it will be cheaper to produce in firm 1 and the rest of Q will be produced in firm 2 and firm 3. Then the demand function will be one for the whole industry P = 16 – 2Q Which means that the MR = 16 – 4Q MC1 3 MC 2 = MC3 4...
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 Spring '10
 Bailey
 Economics, Microeconomics, Supply And Demand, stable cartel

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