Market demand is given by P = 15 - Q. There are two firms, each with TC = 0.5q_i². If one firm honors the cartel agreement while the other firm defects, the total output produced by both firms is: A)5. B)9. C)3. D)7.

Question

Quizplus · Accepted Answer

If one firm honors the cartel agreement and the other defects, the defecting firm will produce where its marginal cost equals marginal revenue, while the other firm produces less. Solving for equilibrium, the defecting firm produces 7 units, and the other firm produces 0 units, totaling 7 units.

Market Demand Is Given by P = 15 - Q