Firms x, y, and z produce and sell an identical product and operate in an oligopolistic...

Firms x, y, and z produce and sell an identical product and operate in an oligopolistic market whose daily demand is

Q = 720 – 4P. Their respective T.C. functions per day are:

T.C.x = 2,600 + 1.25Q2, T.C.y = 2,400 + 1,25Q2, and T.C.z = 1,800 + 1.25Q2

Assume that these three firms agree to join efforts to create a cartel and act as a monopoly and agree to the following market shares of the artificially created monopoly’s optimum output or Q*: Firm x: 40%, Firm y: 35%, and Firm z: 25%. They also agree to charge the same price. Please show your work clearly in answering the following questions:

If the three firms live up to their agreement, how many units will each firm produce and what price will each firm charge?

If none of the three firms cheats on the agreement, what will profits be for each of these firms?

Expert Solution

Rahul Sunny answered 2 hours ago

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