An oligopoly market's monthly demand is given by the equation: Q = 3,840 – 0.8 P....

An oligopoly market's monthly demand is given by the equation: Q = 3,840 – 0.8 P. In creating a cartel, the four oligopolists agree to the following market shares: Firm a: 35%, Firm b: 20%, Firm c: 30%, and Firm d: 15%. They also agree to charge the same price. Their respective Total Costs functions are:

Firm a T.C. = 600,000 + 0.75 Q2

Firm b T.C. = 300,000 + 0.75 Q2

Firm c T.C. = 500,000+ 0.75 Q2

Firm d T.C. = 180,000 + 0.75 Q2

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

Solutions

Expert Solution

If each firm would follow the agreement then at price of 2745 each firm can earn positive profits and also market would also be cleared at that price and quantities. Moreover, in cartel they would behave like monopoly and equates market marginal revenue with cartel's marginal cost.

Rahul Sunny answered 1 year ago

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