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