6. Suppose that there are two identical firms in the silver mining industry. The cost curve ofeach firm is C(Q) = 0.25Q². Quantity (Q) is measured in troy ounces per day. Demand perday for silver is QD = 408 - 8P where price (P) is measured in dollars per troy ounce.a)If the two firms are price takers, then what are the supply curves of each firm?What is the industry supply curve?b)If the two firms behave as price takers, then what will be the price and quantity thatclear the market?d)c) If the firms formed a cartel, then what would be the marginal cost of the cartel?If the cartel is a monopolist, then what price will the cartel charge for silver? Whatquantity will it sell? Illustrate the demand, marginal revenue and marginal costcurves in a diagram.Assume that the firms in the cartel divide the production and the profits equally.e)What are the profits of an individual firm in the cartel?f)Suppose that firm 1 “cheats" on the cartel by producing 2 more ounces than itsallotted equal share. If firm 2 does not cheat (so firm 2 produces the same numberof ounces as they did in part (e)) and firm 1 produces 2 more ounces, then what willbe the new price in the market? Show that firm 1 will earn more by cheating than itdid in part (e).g) Briefly explain why it is that firm 1 could increase its individual profits byincreasing production from the cartel solution but that cartel itself could notincrease profits by increasing production.

Since you have given multiple sub-parts questions, we will solve the first subpart for you. If you…

6. Suppose that there are two identical firms in the silver mining industry. The cost curve of each firm is C(Q) = 0.25Q². Quantity (Q) is measured in troy ounces per day. Demand per day for silver is QD = 408-8P where price (P) is measured in dollars per troy ounce. a) If the two firms are price takers, then what are the supply curves of each firm? What is the industry supply curve? b) If the two firms behave as price takers, then what will be the price and quantity that clear the market? c) If the firms formed a cartel, then what would be the marginal cost of the cartel?

6. Suppose that there are two identical firms in the silver mining industry. The cost curve of each firm is C(Q) = 0.25Q². Quantity (Q) is measured in troy ounces per day. Demand per day for silver is QD = 408-8P where price (P) is measured in dollars per troy ounce. a) If the two firms are price takers, then what are the supply curves of each firm? What is the industry supply curve? b) If the two firms behave as price takers, then what will be the price and quantity that clear the market? c) If the firms formed a cartel, then what would be the marginal cost of the cartel?

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter22: Price Takers And The Competitive Process

Section: Chapter Questions

Problem 16CQ

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