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A 5-member commodity cartel faces the demand curve: P = 60 - .4Q. Each member can produce output at (constant) LAC = LMC = $20 per unit.

a. Describe how the cartel should operate to maximize its total group profit.
b. Under the group profit-maximizing cartel agreement in part a, one member produces 10 units of output. It is tempted to secretly increase its output to 20 units. Assess this strategy and comment on cartel stability.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M940383

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