There are only two firms in an industry with demand curves q₁ = 30 - P and q₂ = 30 - P.Both have no fixed costs and each has a marginal cost of 10 per unit produced.If they behave as profit-maximizing price takers,each produces 20 units and sells them at a price of 10 so that each firm makes zero economic profits.If they formed a cartel,the profit-maximizing price is

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The demand curve for the industry as a whole is the sum of the individual demand curves: qD = q₁ + q₂ = (30 - P) + (30 - P) = 60 - 2P The industry's marginal cost is the sum of the individual firms' marginal costs: MC = MC1 + MC2 = 10 + 10 = 20 To maximize profits, the cartel would produce where marginal revenue equals marginal cost: MR = 60 - 2Q 20 = 60 - 2Q 2Q = 40 Q = 20 The cartel would produce and sell a total of 40 units. To determine the price, we plug in Q = 40 into the demand equation: qD = 60 - 2P 40 = 60 - 2P 2P = 20 P = 10 Therefore, the profit-maximizing price for the cartel is $20.

There Are Only Two Firms in an Industry with Demand