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Principles of Economics- Mankiw (5th) 346

Principles of Economics- Mankiw (5th) 346 - 356 PA R T F I...

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356 PART FIVE FIRM BEHAVIOR AND THE ORGANIZATION OF INDUSTRY John and Joan suddenly discover water sources on their property and join Jack and Jill in the water oligopoly. The demand schedule in Table 16-1 remains the same, but now more producers are available to satisfy this demand. How would an in- crease in the number of sellers from two to four affect the price and quantity of wa- ter in the town? If the sellers of water could form a cartel, they would once again try to maxi- mize total profit by producing the monopoly quantity and charging the monopoly price. Just as when there were only two sellers, the members of the cartel would need to agree on production levels for each member and find some way to enforce the agreement. As the cartel grows larger, however, this outcome is less likely. Reaching and enforcing an agreement becomes more difficult as the size of the group increases. If the oligopolists do not form a cartel—perhaps because the antitrust laws
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