In a certain industry there are two firms selling similar products, Firm A is the...
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Accounting
In a certain industry there are two firms selling similar products, Firm A is the price leader and Firm B the follower. The cost function for the industry is:
C = 60,000 -40Q + 0.025Q2
and the demand function is given by; Q = 4,000 50P.
It has been established that the marginal cost curves for Firm A is exactly the same as that of the industry and its demand function is;
QA = 3,200 40P.
Explain the welfare implications for consumers if the two firms above move from a state of tacit collusion into an outright cartel.
Calculate the value of the loss in consumer surplus resulting from the cartelization of Firm A and B.
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