Suppose that three countries are engaged in oil production. For simplicity, assume zero costs so that revenue equals profit. If the countries create a cartel and agree to mimic monopoly-like behavior to maximize total profit, the level of output each firm would produce is _____ units. Now, suppose that country A breaks the agreement by producing an additional 200 units of output. This results in an increase of profits of _______ dollars for firm A while profits for country B and C both fall by ______ dollars.
Homework Answers
| Q | P | TR |
| 600 | 90 | 54000 |
| 800 | 80 | 64000 |
| 1000 | 70 | 70000 |
| 1200 | 60 | 72000 |
| 1400 | 50 | 70000 |
| 1600 | 40 | 64000 |
| 1800 | 30 | 54000 |
Blanks-
1) If the countries create a cartel.
The level of output each firm will produce = 1200/3 = 400
2) Firm A increases output by 200 so its profits increases by (600*50) - (400*60) = 6000
3) Profits for B and C will fall by 4000
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