Suppose the demand for pizza in a small isolated town is p = 10
- Q. There are only two pizza restaurants, A and B, and each has a
cost function TC = 2 + q. Suppose the restaurants try to collude to
maximize their combined profit, dividing the quantity evenly.
a) What is the total combined quantity of pizzas produced by the
cartel?
b) What is the cartel price?
c) If Firm A decides to defect (cheat) on the cartel and assumes
B will stick to the cartel agreement, what quantity should firm A
produce to maximize its profits?