The world's top for manufacturers on inexpensive random access memory chips, a key component of all consumer electronic devices, agreed to fines and jail term for several executive because of 1999-2002 price fixing. The criminal conspiracy raised prices 400 percent in a six-month period from US$4 per 100 megabits and then orchestrated maintaining the price at US$3. DRAM chip are generic and easily substitutable between suppliers. As a result, a CARTEL agreement to limit production is necessary to maintain price above competitive level. SAMSUNG and HYNIX, two KOREA firms that produce the majority of the chips, paid US$300 million and US$185 million fines respectively. Infineon Technologies or Germany paid a US$160 million fine, and four executives went to jail for several months and paid individual fines of US$250 000. Micron Technology of Boise, Idaho, received immunity for cooperating with the prosecutors and complainants DELL and HP in making the case. (1) Suppose two (2) Korea electronics companies, Samsung (firm S) and HYNIX (firm T), jointly hold a paten in a component used on DRAM. Demand for the component is given by the following function: P=1000-Qs-Qt where Qs and Qt are the quantities sold by the respective firms and P is the (market) selling price. The total cost function of manufacturing and selling the component for the respective firms are: TCs=70000 + 5Qs +0.252s TCt=110 000 +5Qt+0.152t
(i) Suppose that 2 firm act independently, determine the optimal output and price with each firm seeking to maximize its own total profit from the sale of the components.
(ii) Suppose that 2 firms decide to form a CARTEL and act as a monopolist to maximize total profits from the production and sales of the components Determine the optimal output, market share and company total profit when the CARTEL is occurs.