Suppose that two firms compete in quantities (Cournot) in a market in which demand is described by P = 260 - 2Q. Each firm incurs no fixed costs but has a constant marginal cost of 20.
Suppose that after the cartel is established, one firm decides to cheat on the collusion, assuming that the other rm will continue to produce its half of the monopoly output.
a. Given the deviating firm's assumption, how much will it produce?
b. If the deviating firm's assumption is correct, what will be the industry price and the deviating firm's profit in this case?