Problem: An illegal cartel has been formed by three leading ready-mix cement suppliers in the local market. Total costs at various levels of service per day are as follows:
|
Total Cost ($000)
|
|
Daily Output
(000 cu. yds.)
|
Ready Mixes, Inc.
|
Concrete ProductsCo.
|
Hard Stuff, Inc.
|
|
0
|
$ 2
|
$ 3
|
$ 0
|
|
1
|
12
|
14
|
8
|
|
2
|
21
|
23
|
17
|
|
3
|
29
|
30
|
27
|
|
4
|
36
|
41
|
38
|
|
5
|
47
|
53
|
50
|
1. Construct a table showing the marginal cost of production per firm.
2. From the data in part A, determine an optimal allocation of output and maximum profits if the cartel sets Q = 10(000) and P = $10.
3. Is there an incentive for individual members to cheat by expanding output when the cartel sets Q = 10(000) and P = $9?