(Solved) In the graph below, two firms form a cartel arrangement in the sale of their goods. The cartel marginal cost is denoted by MC_T while the marginal


Question: In the graph below, two firms form a cartel arrangement in the sale of their goods. The cartel marginal cost is denoted by \(\mathrm{MC}_{\mathrm{T}}\) while the marginal cost of firm 1 and 2 is denoted as \(\mathrm{MC}_{1}\) and \(\mathrm{MC}_{2}\), respectively. Answer the following questions based on the graph.

  1. What is the profit maximizing level of cartel output and the uniform price that each cartel member is expected to charge?
  2. What is each firm’s share of the cartel quantity?
  3. What can we say about the price out decision for a cartel?
  4. Discuss why a cartel arrangement is not sustainable in the long-run?

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