6. Suppose that there are only two firms in the market for surfboards. Joe\'s Bo

Question

6. Suppose that there are only two firms in the market for surfboards. Joe's Boards and Karen's Waves have identical cost curves given by C, (Q) = 0.250; and C, (Q) = 0.25g: The market inverse demand curve for surfboards is P = 300-0.5Q. Assume that Joe and Karen form a cartel a) What is the marginal cost curve of the cartel? b) What is the price and quantity that the cartel will charge? What will be the (numerical value of the) elasticity of demand at that price and quantity? c) How much will each firm sell (i.e. the quota of each)? What will be the profits of the cartel? What will be the profits of the individual firm? Suppose that Joe decides to cheat on the cartel agreement. Specifically, Joe decides to sell two more surfboards than his quota. Assume below, that Karen does not cheat and produces her quota d) e) f) What will Joe's total profits be if he cheats and sells two more boards? What will the profits of the cartel be if Joe cheats and sells two more boards? Briefly explain how Joe's profits went up but the cartel profits went down when Joe sold two extra boards

Explanation / Answer

a) The total cost of cartel = 0.25Q2 + 0.25Q2

TC of cartel = 0.50Q2

MC of cartel = Q

b) MR = 300 - Q

so, MR=MC

300 -Q = Q or 300 = 2Q

Q = 150

P = 300-0.5*150 = $225.

so, the cartel price is $225 and quantity is 150.

P= 300-0.5Q

differentiate it with respect to Q.

dP/dQ = -0.5

Ed = dp/dq * P /Q

Ed = -0.5 * ( 225 / 150)

Ed = -0.75

c) each firm sell = 150 / 2 = 75

so, each firm sell = 75 units

profits of cartel = TR-TC

profits of cartel = (225 *150) - (0.5*150)2

profits = 33750-5625 = $ 28125

profit of each individual = $14062

d, e,and f. please upload question again. its against chegg policy

Related Questions

Navigate

• Browse (All)
• Browse 6
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.