The figure below shows the demand for nectar in Gardenia. Suppose that there are only two firms Ace and Pace, producing nectar and they decide to act as a (monopoly) cartel and share the market equally.
a) What price and output will maximize their joint total revenue and what amount is that?
b) In the payoff matrix below, show in Cell A the amount of total revenue each will receive if they stick to the agreement. c) Suppose that Ace believes that Pace will honour the agreement by maintaining his present output. However, Ace decides to cheat and increase his output by 40%. What will be Ace's and Pace's result in cell B?
d) Now assume that the positions are reversed and that Pace decides to cheat while assuming that Ace will stick to the agreement. Show Ace's and Pace's resulting revenues in Cell
C.
e) Finally, in Cell D show the total revenue of Ace and Pace that would result if they both cheat.

Question

The figure below shows the demand for nectar in Gardenia.  Suppose that there are only two firms Ace and Pace, producing nectar and they decide to act as a (monopoly) cartel and share the market equally.
a) What price and output will maximize their joint total revenue and what amount is that?
b) In the payoff matrix below, show in Cell A the amount of total revenue each will receive if they stick to the agreement.  c) Suppose that Ace believes that Pace will honour the agreement by maintaining his present output. However, Ace decides to cheat and increase his output by 40%. What will be Ace's and Pace's result in cell B?
d) Now assume that the positions are reversed and that Pace decides to cheat while assuming that Ace will stick to the agreement. Show Ace's and Pace's resulting revenues in Cell 
C.
e) Finally, in Cell D show the total revenue of Ace and Pace that would result if they both cheat.

Quizplus · Accepted Answer

The Answer of The figure below shows the demand for nectar in Gardenia.  Suppose that there are only two firms Ace and Pace, producing nectar and they decide to act as a (monopoly) cartel and share the market equally.
a) What price and output will maximize their joint total revenue and what amount is that?
b) In the payoff matrix below, show in Cell A the amount of total revenue each will receive if they stick to the agreement.  c) Suppose that Ace believes that Pace will honour the agreement by maintaining his present output. However, Ace decides to cheat and increase his output by 40%. What will be Ace's and Pace's result in cell B?
d) Now assume that the positions are reversed and that Pace decides to cheat while assuming that Ace will stick to the agreement. Show Ace's and Pace's resulting revenues in Cell 
C.
e) Finally, in Cell D show the total revenue of Ace and Pace that would result if they both cheat.

The Figure Below Shows the Demand for Nectar in Gardenia