Assume a group of firms has formed a cartel and the cartel is in engaged in joint profit maximization.As such,each firm,acting in its own interests,has an incentive to expand production up to the point at which:

Question

Quizplus · Accepted Answer

Since the cartel is engaged in joint profit maximization, the cartel will set the price at the point where the total market demand equals the total market supply (including the output of all firms in the cartel). Each firm will then maximize its profits by expanding production up to the point where its marginal cost equals the cartel-determined price, which is the price at which the cartel can sell all of the output produced by its members. At this point, the firm has no incentive to produce additional units because the marginal cost would exceed the cartel-determined price, resulting in lower profits. Therefore, each firm has an incentive to produce up to the point where its marginal cost equals the cartel-determined price.

Assume a Group of Firms Has Formed a Cartel and the Cartel