00:01
Consider the curve which shows that the market demand, marginal cost, and marginal revenue curves for firms in an all -goblastic industry.
00:11
In the example, we assume firms have zero fixed costs.
00:15
Suppose that the firms collude to form a cartel.
00:18
What price will the cartel charge? what quantity will the cartel supply? and how much profit will the cartel earn? if the firms collude to form a cartel, they would charge the price attained at that quantity where marginal cost equals marginal revenue.
00:32
This is because now they have become a monopoly, and profit is maximized for monopoly when quantity, at a quantity, where marginal cost equals marginal revenue.
00:44
Suppose now that the cartel breaks up and the all -coastic firms compete as vigorously as possible by cutting the price and increasing sales.
00:52
What will be the industry quantity and price, and what will be the collective profits of all firms in this industry? when the cartel breaks up, each firm tries to undercut each other firm in order to obtain a larger share of the market.
01:08
This will go on until the time where price equals marginal cost, as firms cannot cut price below this point where they'll face loss and margin in every unit.
01:19
Quantity will be where marginal cost equals demand...