Question: A market has an inverse demand function defined by
p = 200 - 0.5X
Two firms exist in this market that have identical total costs. For firm 1 these are defined by
TC1 = X1 + 0.5X1
with an equivalent definition for firm 2.
(a) If these two firms form a cartel, define the cartel's, marginal cost function.
(b) What is the cartel's profit maximising output and the profit earned?
(c) How much will firm 1 sell if it cheats on the cartel?