Answer to Question #214104 in Microeconomics for mash

Question

(e) What output should farmer 1 produce if he/she expects their rival to produce 20 units? [4] (f) Calculate the profits if farmer 2 decides to break the cartel agreement [4] (g) Does joining a cartel offer any benefits to both farmers? Justify your answer [4] (h) What if farmer 1 is a leader and farmer 2 a follower, determine the price, quantity and profits made by these two farmers. [8] 

Answer 1

e) if the rival produces 20 units, then farmer 1 try to produce the Atleast the same level of output as the competitor does in the market to make themselves competitive in market.

f) farmer 2 can enjoy more profit if he decides to break the cartel agreement as now after breaking cartel agreement he can work independently in the market and set their own price for the products.

g) Being in cartel will help both farmers to reach more customers in the market.

h) price, quantity, profits are decided by farmer 1 as he is the leader and all the prices, quantity and profits decided by farmer 1 only for farmer 2 as well in the market.