Suppose that market demand can be represented as p = 100 - 2Q. There are 10 identical firms producing an undifferentiated product, each with the total cost function TC = 50 +Â q
2
q2
. Compare the competitive outcome with the cartel outcome. What is the individual firm's incentive to cheat on the cartel?
"P=100-2Q"
"TC=50+Q^2"
This means that each firm has "MC=2Q"
Setting "MC=P" gives the individual firm's supply to the market:
"\\implies 2Q=P"
"2Q=100-2Q"
"Q=25"
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